Before the opening bell, United Parcel Services (UPS), the world’s largest package delivery company, declared its adjusted third quarter 2010 earnings of 93 cents per share, which surpassed the Zacks Consensus Estimate of 87 cents. Earnings per share shot up 69% year over year from 55 cents in the year-ago quarter on strong revenues and superior execution.
On a reported basis, earnings saw a whopping year-over-year increase of 80% in the third quarter. United Parcel also recorded a one-time benefit of $61 million from the real estate sale.
Total revenue grew 9.3% year over year to $12.2 billion but was below the Zacks Consensus Estimate of $12.4 billion. The year-over-year increase reflects consolidated volume growth of 3.3% and a 3.7% increase in total revenue per piece. Adjusted operating income also increased 62.2% year over year to $1.5 billion, reflecting an operating margin of 12.4%, up 410 basis points year over year. Growth in the international sector outpaced growth in domestic sector.
Revenue Segments
US Domestic Package revenue climbed 6.1% year over year to $7.3 billion. Operating profit surged 77% from the year-ago quarter to $911.0 million, resulting in an operating margin of 12.5%, up 500 bps year over year. This increase was driven by strong growth in volume, higher yields and improved efficiencies. Average daily volume upped 3.6% year over year on strong growth in Ground and Next Day Air. Revenue per piece improved 4% due to increases in base pricing and higher fuel surcharges.
International Package revenue leaped 10.7% year over year to $2.7 billion. Operating profit increased 34% to $419 million from the year-ago level, resulting in an operating margin of 15.7%, up 280 bps year over year. Export average daily volume rose 13% year over owing to strong growth in all regions. Exports to Asia led in the quarter with an increase of 30% from the year-ago level. Non-U.S. domestic volume increased 14% driven by strong growth in Europe, Canada and Mexico.
Supply Chain & Freight segment revenue increased 19.96% year over year to $2.23 billion. Operating profit shot up 74% year over year to $177.0 million, resulting in an operating margin of 8%, up 250 bps from the year-ago quarter. Margins expanded due to stronger revenue as well as improved efficiencies in Forwarding and Logistics business.
Outlook
United Parcel now projects adjusted earnings growth of 51%–53% for 2010. The company raised its earnings per share guidance to a range of $3.48–$3.54 from $3.35–$3.45 per share. The mid-point of $3.51 cents is well above the current Zacks Consensus Estimate of $3.44 per share.
Our Analysis
With improvement in the economic recovery, we believe the company will benefit from its broad product portfolio, continued momentum in its segments, economies of scale, and significant investments made on the domestic as well as international front. However, a large European exposure, a slowdown in global trade and lower operating leverage could limit the upside for the stock.
Based on the company’s commitment to fuel the company’s earnings growth and margin expansion in the current economy, we are maintaining our Buy recommendation with Zacks #2 Rank for the short term (1-3 months).
However, we are currently reiterating our long-term Neutral recommendation on United Parcel Services.
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
Zacks Investment Research
