Major freight forwarding carrier United Parcel Services Inc. (UPS - Analyst Report) announced that a compressed peak season, a boom in online shopping and unfavourable December weather are going to hurt its fourth quarter 2013 profits.
The company’s fourth quarter preliminary results point to diluted earnings per share (EPS) of $1.25, which is way below the Zacks Consensus Estimate of $1.42.
For full-year 2013, the company expects adjusted diluted EPS of $4.57, lower than $4.65–$4.85 guided in July 2013. The forecast is also way below Zacks Consensus Estimate of $4.75. United Parcel will report its earnings on Jan 30, before market opens.
A late Thanksgiving Day cut short the holiday shopping season. Then the last-minute online shopping surge just before Christmas created a menace for the company. The express carrier hired 85,000 temporary employees, 30,000 more than planned, to maintain service standards and commitments. What followed was a snowball effect that ended up in higher costs.
The Atlanta-based company also cited a harsh weather with heavy snowfall as the primary reason for the disappointing fourth quarter.
However, on Dec 23, United Parcel delivered 31 million packages, which was 13% more than last year’s peak day and 7.5% ahead of its expectation. Additionally, the company is optimistic about 2014 and expects a 10–15% surge in diluted earnings, which is in tune with its long-term target.
The online shopping craze and recent rate hikes within the U.S., Canada, and Puerto Rico and among these markets are expected to benefit the company’s 2014 results. Thus despite a weak guidance for the full year, these positives hold the stock from a major slide. It declined a mere 0.6% on Friday's trade on Nasdaq.
We also see reflections of a sluggish worldwide economic condition in the reduced earnings guidance for 2013. However, World Bank’s recent global GDP forecast of 3.2% bodes well for the company as the success of logistics companies depends upon worldwide economic development.
United Parcel carries a Zacks Rank #4 (Sell). Better-ranked stocks within the same sector include Pacer International Inc. Grupo Aeroportuario del Pacifico S.A.B. de CV (PAC - Snapshot Report) and Student Transport Inc. (STB - Snapshot Report). All the stocks currently carry a Zacks Rank #2 (Buy).