UPS Adds Cloud Technology

World’s largest freight forwarding company, United Parcel Service, Inc. ( UPS - Analyst Report ) is upgrading its supplier management services by introducing UPS Order Watch. The new addition is a cloud based technology that will facilitate the inbound supply chain of its customers.

The new Order Watch technological platform, currently available to existing customers, will be offered to new customers in 2013 as well.

UPS’ supplier management service is a product of its international ocean and air freight forwarding business. The introduction of cloud based technology to this service would add to the service quality, thereby attracting more new customers.

The Order Watch platform aims at enhancing efficiency in terms of timeliness, accuracy alongside improving processing and management of suppliers. We are also hopeful that the introduction of this cloud based technology would remain accretive in stimulating the otherwise down international freight business of UPS given current macro economic factors.

The company in its previous reports had already indicated a slowdown in manufacturing business in Asia. UPS now apprehends a downtrend in manufacturing orders due to lower exports in China.

Apart from international business, UPS expects U.S. Domestic Package revenue to grow in the range of 1%–2%, down from its previous projection of mid single-digit growth. The company even expects U.S. Domestic Package average daily volume growth to moderate due to unfavorable macroeconomic factors.

It also expects a lackluster volume growth in premium and B2B products as customers are seeking more cost effective logistics solutions. Consequently, the company has set a conservative earnings target ranging between $4.55 and $4.65 for 2012, which is substantially lower than its previously projected targets. The current Zacks Consensus Estimate for 2012 is pegged at $4.58; concurrent with the company’s range of estimates.

However, we believe over the long term the company will continue to invest in technology and network enhancements that would provide a competitive edge over its peers like FedEx Corporation ( FDX - Analyst Report ) . Its integrated sales approach also promises future growth, given its industry-leading margins and financial strength. The company is also seeking capacity adjustment by reducing Asian air networks to improve cost structure. Further, its focus on continued productivity gains, improved operating profit, and strengthening liquidity position amidst economic challenges also is encouraging.

We have a long-term Neutral recommendation on UPS and FedEx. Both these stocks retains a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.