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United Parcel Service, Inc. (UPS - Analyst Report) reported third quarter 2013 adjusted earnings per share of $1.16, in line with the Zacks Consensus Estimate. The bottom line showed a 9.4% improvement over $1.06 earned in the corresponding quarter last year. The growth was driven by the company’s expansion into emerging markets, increasing healthcare distribution centers and success of its global retail delivery business model.  

Total revenue for the quarter grew 3.4% year over year to $13,521 million but fell short of the Zacks Consensus Estimate of $13,653 million. Increasing e-commerce activities and higher European export aided the growth.

Total adjusted operating profit registered growth of 8.5% year over year to $1,804 million. Adjusted operating margin also improved 60 basis points (bps) year over year to 13.3%.

Revenue Segments
US Domestic Package revenues rose 5.0% year over year to $8,254 million in the reported quarter. Adjusted operating profit grew 15.7% year over year to $1,186 million. Operating margin expanded 140 basis points (bps) year over year to 14.4%. The segment gained from cost efficiency from productivity and safety improvements and an additional operating day.  
Average daily volume increased 2.3% on increased online shopping. Revenue per piece improved 1.0% year over year buoyed by higher rates.

International Package revenues rose 2.5% year over year to $3,017 million. Operating profit fell 7.1% year over year to $417 million mainly due to unfavorable currency and fuel impacts. Operating margin contracted 150 bps to 13.8%. Average daily volume grew 6.5% year over year on strong international shipments in Europe. Revenue per piece fell 5.2% year over year.
Supply Chain and Freight segment revenues were down 0.7% year over year at $2,250 million. Operating profit rose 6.9% year over year to $201 million. Operating margin improved 60 bps year over year to 8.9%.

UPS generated free cash flow of $3.6 billion and spent $1.6 billion in the first nine months of the year. The company repurchased 33 million shares worth $2.9 billion and paid dividends of $1.7 billion.


The company maintained its 2013 adjusted earnings per share estimate range of $4.65 to $4.85. This projection represents year-over-year growth of 3% to 7%.

Our Analysis

We believe that the booming health care segment, shipment and yield growth along with productivity improvements will help UPS to fuel profitability in the future. Moreover, the company’s strategic investments, technology-backed operations and enhanced worldwide network will strengthen its market position and safeguard shareholder value despite unfavorable market dynamics.

However, factors like labor unionization, competitive threats from players like FedEx Corp. (FDX - Analyst Report) and Expeditors International of Washington Inc. (EXPD - Analyst Report) and economic upheaval continue to pose significant threats to UPS’ growth.

Zacks Rank & Other Picks

Currently, UPS holds a Zacks Rank #4 (Sell). Stocks that offer value within this sector include Radiant Logistics, Inc. (RLGT - Snapshot Report), which has a Zacks Rank #2 (Buy).

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