Unanticipated Surge In Holiday Season Deliveries May Hamper UPS’s Fourth Quarter Results
United Parcel Service (NYSE:UPS) is set to announce its fourth quarter 2013 earnings results on January 30, 2014. In the third quarter, UPS posted 9.4% growth in adjusted earnings per share, signaling business recovery after a weak performance in the first half of 2013. [1] However, it seems that UPS may not be able to carry the earnings growth into the fourth quarter. UPS recently announced its expectations of a tepid performance in the fourth quarter due to the unanticipated surge in online shopping orders and bad weather which resulted in an increase in overhead costs. UPS lowered its full year’s adjusted diluted earnings per share to $4.57 from its previously provided guidance of $4.65-$4.85. [2] The fourth quarter diluted earnings per share is expected to be $1.25.
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Surge In Online Shopping Orders Likely Led To Higher Revenues And Costs For UPS’s Domestic Package Segment
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Online sales and last minute orders during the holiday season likelydrove up UPS’s domestic package segment revenues in the fourth quarter 2013. More and more people are shifting to online shopping not only because of its convenience but also because of better accessibility, enabled by an increase in smartphones and tablets. Many brick-and-mortar retailers have rolled out online shopping portals to cater to the growing online retail shopping customer base. Deals and discounts on online shopping also encourage customers to purchase via websites rather than traditional stores. UPS had delivered more than 31 million packages on December 23 2013, 13% higher than the number of packages delivered on the peak day of previous year. [2]
Though the unexpected surge in packages means higher revenues, it also implies higher costs. UPS had to utilize extra 30,000 temporary employees to cope with the pressures of the highest delivery day of the year, which occurred around a week later than anticipated. [2] This likely hampered net profits in the fourth quarter as the costs went up.
International Export Shipments May Aid Growth
In the third quarter 2013, UPS’s volume from international export segment grew 6.7% driven by increased trade activity along lanes connecting Asia, Latin America and Europe. [1] We expect the segment’s volumes to continue to grow in the fourth quarter as well. UPS has been introducing low-priced offerings to bolster growth in international export package volumes since customers are now moving to cheaper alternatives for shipping packages. UPS has also been investing in expanding its capacity in international markets. It recently announced two new distribution facilities in Chengdu and Shanghai, which will help cater to shippers who want to deliver to China. [3] UPS also announced the acquisition of two small Costa Rica based logistics companies to expand its presence in Latin America. [4]
We will be revising our price estimate of $108 for UPS after the company files its results with the SEC.
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Notes:- UPS’s Third Quarter 2013 Report, November 5 2013, www.ups.com [↩] [↩]
- UPS Announces Expected 4Q Results, January 17 2014, www.ups.com [↩] [↩] [↩]
- UPS Expands Logistics Reach to Meet Emerging Demand in China, August 13 2013, www.ups.com [↩]
- UPS to Purchase Two Costa Rican Companies Boosts Customer Access to Global Markets, September 4 2013, www.ups.com [↩]