United Parcel: Expansion Plans On Track, Forex Woes Stay

We issued an updated research report on United Parcel Services Inc. (NYSE:UPS) on Aug 23. The company’s second-quarter performance failed to impress investors despite earnings meeting estimates and also improving on a yearly basis. The company’s revenues also increased from the prior-year quarter.

United Parcel holds an impressive earnings record with respect to Zacks Consensus Estimate. The company posted a surprise in three of the last four quarters, with an average surprise of 4.23%. Being a renowned name in the logistics industry, United Parcel has a well-diversified global network and actively pursues upgrades and improvements to gain an edge over its competitors.

Factors Driving Growth

United Parcel’s operations have been benefitting from the increasing popularity of e-commerce and growing international trade in the logistics industry. The company has been consistently expanding operations, evident from its recent introduction of UPS Worldwide Express Freight services in nine countries – Bahrain, Bangladesh, Kuwait, Malta, Morocco, Pakistan, Qatar, Sri Lanka and Tunisia. The company also opened new driver training centers in Cologne and Bolyston. The company collaborated with SAP SE (NYSE:SAP) earlier this year to provide on-demand 3D manufacturing services. Customers can book the products or services online and have them delivered to their doorstep by United Parcel. Thus, the company’s consistent efforts to expand should drive growth. Moreover, United Parcel continues to impress with its shareholder returns policy.

Performance Concerns

United Parcel’s vast scale of global operations raises concerns over its exposure to adverse foreign exchange movements. The company’s revenues in the second quarter were also affected by this. United Parcel also faces stiff competition from peers such as FedEx Corp. (NYSE:FDX). These challenges may also hinder company’s revenues and earnings in the future.

As per the guidance issued by the company, adjusted earnings per share for 2016 are projected in the band of $5.70 to $5.90. The range reflects 5% to 9% growth over the comparable 2015 figure of $5.43. The Zacks Consensus Estimate for 2016 is within the guidance at $5.80.

Zacks Rank and Key Picks

United Parcel currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the transport sector include Air Transport Services Group Inc. (NASDAQ:ATSG) and ANA Holdings Inc. (OTC:ALNPY) , both carrying a Zacks Rank #2 (Buy).