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United Parcel Service, Inc. (UPS - Analyst Report) reported fourth quarter 2013 adjusted earnings per share of $1.25, in line with the Zacks Consensus Estimate. The bottom line slipped 5.3% from $1.32 earned in the corresponding quarter last year. The company registered a significant increase in its operating cost during the quarter owing to higher-than-expected volume and unfavorable weather conditions that hurt its earnings. 

Total revenue for the quarter grew 2.8% year over year to $14,976 million but fell short of the Zacks Consensus Estimate of $15,137 million.

For 2013, the company reported adjusted earnings per share of $4.57 (up 0.9% year over year) on revenues of $55.4 billion (up 2.4% year over year).

Total adjusted operating profit declined 6.9% year over year to $1,908 million. In 2013, adjusted operating profit remained flat year over year at $7.1 billion. 

Revenue Segments

US Domestic Package revenues rose 4.2% year over year to $9,308 million in the reported quarter. Adjusted operating profit dropped 12.9% year over year to $1,200 million.

Average daily volume increased 5.6% on Deferred and Ground volume expansion. Revenue per piece dipped 1.3% year over year given lower fuel surcharges, unfavorable changes in product and customer mix and higher service refunds.

International Package revenues rose 5.3% year over year to $3,372 million given growth in the U.S. export products. Operating profit grew 7.6% year over year to $537 million. Operating margin expanded 30 bps year over year to 15.9%.

Average daily volume grew 8.8% year over year on strong international shipments in Europe and the Asia-to-Europe trade lane. Revenue per piece fell 3.2% year over yeardue tolower fuel surcharges and increased demand for non-premium products.

Supply Chain and Freight revenues were down 5.8% year over year at $2,296 million due to revenue decline in the Freight Forwarding business. Operating profit was down 0.6% year over year at $171 million given poor performance in Forwarding and UPS Freight business.


UPS generated free cash flow of $5.3 billion and spent $2.1 billion in 2013. The company repurchased 43 million shares worth $3.8 billion and paid dividends of $2.3 billion last year.


The company expects 2014 diluted earnings per share to range between $5.05 and $5.30, representing growth of 11% to 16% over 2013 adjusted earnings per share.

The company plans to repurchase shares worth $2.7 billion in 2014 and capital expenditure is expected at approximately $2.5 billion. This expenditure will include expenses for technological deployment, and increased investments of $500 million in capacity expansion and hub modernization.

Our Analysis

We believe that the booming health care segment, shipment and yield growth as well as 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), Expeditors International of Washington Inc. (EXPD - Analyst Report) and Radiant Logistics, Inc. (RLGT - Snapshot Report) as well as economic upheaval continue to pose significant threats to UPS’ growth.

Currently, UPS holds a Zacks Rank #3 (Hold). 

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