UPS Explores a New Business Path
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United Parcel Service (NYSE: UPS) is headquartered at Sandy Springs, Georgia, and is in the business of global package delivery, bringing about fifteen million packages to more than six million clients around the globe. Known for its brown trucks that mimic its brown paper packages, it operates its own airline that flies out of its Louisville, Kentucky hub.
The company was founded as the American Messenger Company in Seattle by James Casey, who later merged with other entrepreneurs to become the Merchants Parcel Delivery by 1913. At this time, the company introduced consolidated delivery, and thus was born United Parcel Service. Over the years, the look and service of the company has not changed, yet its reach and breadth now spans the globe. In 1999, UPS became a publicly traded company, and in its first move the company acquired Mail Boxes Etc, a global retail chain of business service centers, and Menlo Worldwide Logistics, a global supply chain company with operations in 20 countries worldwide, covering third party logistics and supply chain management.
The Industry Nemesis
Forever intertwined with UPS is its major competitor FedEx (NYSE: FDX). FedEx is another US company in the global package delivery service and has been in constant competition for this market. One of the major moves of FedEx is to organize what it termed as the ‘Brown Bailout.’
The issue was the inclusion of a provision to the Federal Aviation Administration Reauthorization Act of 2009 that changed conditions of union rights for employees of FedEx. The dispute was the classification of non-airline personnel of FedEx coverage not under this law but either in the National Labor Relations Act or the Railway Labor Act. UPS’s very own non-airline workers were covered by the NLRA, while the RLA covered the airline employees, and UPS drivers, handlers, and clerks were members of the International Brotherhood of Teamsters. FedEx claims that the change in statute coverage would be giving UPS a bailout, since the new law would require FedEx to unionize nationally, while UPS employees can unionize locally.
Standing in the Stock Market
After reaching its lowest levels in the first quarter of 2009, UPS' shares are currently trading between $82.27 and $83.14, with a 52 week high of $84.11 and EPS of $0.80. It has recently declared an annual dividend of $2.48 per share and its P/E ratio is pegged at $104.50. The company has forecasted earnings for 2013 at 10.64%, nearly double the industry average.
It is in these numbers UPS shows its robust operational base and its capacity towards expansion. As the forecasted earnings clearly indicate, its current expansion into transportation and logistics is the right way to go for true delivery from UPS.
Addressing Customer Needs
UPS is now in the process of expanding its services, forming a strategic alliance with Jabil Circuit Inc for Global Reverse Logistics Services. The purpose is to provide repair and return programs for high technology equipment manufacturers and enterprises on a global scale. This partnership would provide a turnkey supply chain model to drive efficiency and enhance customer service delivery.
It also made a bid for TNT, but the bid was scrapped because of the falling value of the European logistics and carrier company, proving to be unpalatable for the long-term objectives of the company. The business has been expanding into the transportation sector, competing with major companies such as J.B. Hunt Transport Services (NASDAQ: JBHT) and Old Dominion Freight Line (NASDAQ: ODFL).
Both these companies are reeling from the current market shrinkage and high fuel costs, with JBT decreased its fleet size by 19% to assuage its revenue loss of 12% from the previous year. On the other hand, Old Dominion is the country’s fifth largest LTL carrier, putting it in direct competition with UPS on LTL carriage as it only handles ten percent of the overall market, a market currently dominated by FedEx.
Things to Expect from UPS
Despite the apparent plain looking brown trucks and uniforms, UPS has been the picture of stability and steadfastness in high-speed global delivery and transportation services. While it grows slowly, picking its spots against the competition, its current path of lateral expansion into reverse logistics and transportation will only serve to complement and support the growth of the UPS brand in the years to come.
RhodoraDagatan has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!