Thinking back to last weeks earnings call, some real good things. Smart to allow people the option of a consolidated delivery point in urban areas. Nice to see us reverting back to the pre-B2C business model of consolidated delivery being the most profitable. Hopefully, people see this as advantageous to them. Then I'm thinking about our international strength in in Europe. Despite an ongoing malaise there, we did fine in the international export/import/intra-Europe business. Not too shabby.
You seem to be the person with the clarity on what's going on in the center/hubs so I have question for you. Historically, UPS has been a significant user of the TOFC network while FDX has not. Several times, inlcuding during the CC, there have been references to continued rail service disruption. I live near a freight train location and see a remarkable increase in the # of oil/chemical cars being transported. Is this at the expense of meeting their service capacity and obligation to us? Are we re-evaluating our approach to that type of service and perhaps moving into more sleeper tractor trailer operations? If so, wouldn't the expense be magnified?
Interesting to think about. FDX projected 8.8% volume growth over peak and we're saying 11%. I love that we've warned large shippers that if they decide to do any late promotions that put our service commitments at risk, we'll charge a premium IF we can handle that late volume at all. This seems more than fair. In addition, I'm glad there were comments about holding our inter-modal counterparts accountable like the rail networks. Just like need to increase infrastructure spending to meet customer needs, so should they. BTW, we reported solid international growth despite a less than robust Europe, Japan and a slowing china. Not too shabby.
I'd like to think that with oil under $90, unemployment lowering (albeit not terrific jobs), inflation contained, peak season planning optimal, ORION build-out doing well and the larger # of packages falling under DIM rate configuration, the going forward advice for Q4 and beyond should be solid. GDP is OK, China has opened up previous restrictions vs UPS and FDX, on-line shipping (and therefore a healthy # of returns) continues to grow exponentially and healthcare logistics remains a high growth sector and we are the leader in that field. I find it hard to fathom how our report should not be solid. The only concerns are the Eurozone and China GDP growth. I think everything else should trump that although.
BTW, GDP for Q@ was revised upwards to 4.6% so why the UPS malaise? Q3 is now expected to hit 3.1% with 2015 looking about the same. The only thing I can think of is that the Eurozone is killing us. Another thing is this term "full employment." The so-called strategists are lining up to say that there will be pressure on the Fed to raise the base interest rates when this happens supposedly in mid-2015. My question is how can anyone believe that sub-standard wage/bad benefits full time jobs and non-benefits part-time jobs have anything to do with a full employment scenario? But then again, the dual mandate part of the Fed's decision making includes the base inflation rate which is well below the magical 2% level. It just seems to me that until housing starts gets back to normal and disposable income (we are a 70% consumer driven economy after all) returns to a decent level based upon better paying and full-time jobs, UPS will not be able to reach revenue goals. How FDX did it is clearly infused by its ground operations. Their IC model has allowed them to increase margins significantly there and until the legal issues catch up with them, it will continue. Note that FDX is near their all-time highs again today.and we're- well, we are where we are.
UPS will be conducting an interesting CC in a few weeks. As we all know, FDX hit a home run during theirs. They hit on all cylinders including revenue/EPS beats, share buybacks, cost containment program proceeding as scheduled, volumes improved, margins improved- basically everything the analysts and investors wanted to hear. Somehow, their various legal problems- independent contractor legal losses, price fixing in France and the knowing delivery of illegal drugs within the U.S.- didn't seem to hit the radar screen. Meanwhile, our updates have included infrastructure expenditures for both peak and future needs, the better than expected rollout of ORION and the higher # of peak season hires. All these are costly items. Add to that the malaise in Europe (our area of supposed strength) and one must wonder how our Q3 will be described and the going forward advise for Q4 and beyond. We seem to always throw in the caveat that the stagnant GDP hurts our performance. OK- but why hasn't it hurt FDX in the same manner? Something needs to change and the best starting point would be with a significant revenue/EPS beat. Get our P/E down to FDX's level. When that happens we'll start to steadily climb into the $100's. We got there before backsliding. Meanwhile, FDX's recent performance has them with 12-month price targets over $200. C'mon guys......
Man, were we lucky that the TNT merger was scuddled by European regulators. TNT is getting creamed as they lowered guidance due to European malaise. They're off around 12%. An RBS analyst was highly critical of management pointing out a long period of under investment and the thought that things will be worse before they get better. In addition to all those problems, they are part of an ongoing French anti-competitive pricing probe (which includes FDX BTW) and due to expectations of culpability they have set aside $64M as their projected liability. So, in my mind this all really suggests that whoever was looking at the UPS/TNT merger may have been blinded by sheer size vs. getting a good deal. Essentially, we would have been paying an above-market premium for a decaying albatross. Not only that, but our debt would have been monstrous and we'd have had no operational flexibility to do some of the things we've had to do to improve this year's peak. I for one think there should be some review of the near disaster with those financial geniuses who would have supported the TNT merger. What were they thinking?
FDX was clear and precise. Operating margins were spectacular, share buyback in Q4 was $2.8B, beat on both EPS and revenues, re-structuring program doing great, 10 planes retired generating $4M savings per along with tax write-offs- these types of results/statements are just what institutional investors want to hear. I read today where S&P Capital IQ just raised their 12 month target for FDX from $180 to $220! Meanwhile our message seems to be a muddled "we're committed to a better peak and will be spending thru the roof to do it." We're too conservative about our projections regarding domestic growth. If it's so sluggish, how did FDX pull off their great Q? C'mon guys- stop sleepwalking and get enthused and let the marketplace know we're in the game. I see funny, creative and informative ads from both the Post Office and FDX on time sensitive products but nothing from us. I remember being so excited when UPS ran their 1st set of TV ads from Amurati and Puris. Seems like so long ago. We're in an advertising blackout it seems. The only news you get is a news release you have to go to our site to even see. Maybe I'm just thinking bleekly but.....
First forward P/E. UPS stands at 17.33 while FDX is at 14.78. FDX's drastic improvement in their recently reported margins was key here. As we all know, the FDX fiscal year ended in May so their forward price to earnings ratio will always favor ours as earnings invariably increase into the future (this is actually clever market manipulation #1 by FDX). Secondly, UPS has 913M shares outstanding while FDX only has 285M after they have been addressing share buybacks. So UPS has more than 3X as many shares out there as FDX has which is a reason not to split. Thirdly, UPS has always had strength in Europe while FDX is stronger in Asia. This has not helped as the European economy has stagnated. So, when the investing world makes comparisons, we need to shine on our Q3 and not talk about subdued economic conditions. As it is, we've invested much and announced an intention to hire 95K peak season workers, That would indicate that our peak season expectations should be solid. Now our margins need to get back to a higher level and well be fine.
Wow. Great quarter showing most importantly, a huge improvement in margins. Their shares are going thru the roof. So, it's time for UPS to kick into gear as many of the same tailwinds that helped FDX should be in our report. The only real difference is they had substantial pension savings this Q. We've been talking a good game of late- (adding 95K peak workers, insuring hubs operate optimally during peak, ORION roll-out ahead of schedule, etc.) but it's time to reflect it on the bottom line. We're up today simply on the coattails of FDX. We need to demonstrate we're on the right path too. An interim "we expect to meet or exceed" expectations type of release would be nice. Another "blame it on the stagnant economy" earnings call would be disastrous and call into question a number of things. I don't expect that though.
upsoars- very cool! Finally, a REAGAN appointee agrees with his 9th circuit court of appeals that the FDX ground and home delivery IC model is devious. Wait for the lawsuits- present and former IC's alike- to come out of the woodwork. It's about time labor in this country won a seemingly obvious case. NJ ruled a decade or so ago in as similar case involving workers in the construction field building ill-fated casinos. That business model is about as American as companies leaving this country for tax inversion purposes. I wonder what the impact is on FDX share later today? At minimum, if they think they can reverse the decision somehow, the legal expenses will be thru the roof. Wait to hear that Fred Smith is retiring soon..../
We were cautious on the last earnings call saying we weren't seeing the robust growth that a 3.1% GDP expectation for 2014 would suggest. Well, today the GAO lowered the # to 1.5% more in line with what we were seeing. I would imagine we have staffed and spent accordingly. With the lowered fuel cost this quarter, we might beat lowered expectations.
Paganpink- imagine if administrations that followed Jimmy Carter had kept a focus on solar energy going instead of tearing the panels off the White House roof in deference to big oil? Imagine if we had given the same level of tax credit benefits and exploration support to that industry that the oil and gas industry has enjoyed all these years? Surely you agree that certain parts of the country would be well-served by more solar energy focus while other parts, like the midwest and the 2 coasts, might focus on wind energy. Give me one decent reason why in the post-Carter years we couldn't have figured out a way to harness the only constant energy force- WAVES AT EVERY SHORELINE! They never, never stop. The answer is the energy policy in this country has always been the easy way out. No long-term thinking, just drill baby drill!
Maybe I'm getting my dates confused but wasn't Texas intra a few years earlier? I was on both the Oklahoma and that assignment too. Obviously then we know each other. That being the case, how can I get a personal message to you?
norjoa1- did you know anybody from your area that was on the UPS Oklahoma intra-state authority ICC hearing team around 1980?
Along those same lines. I wonder if it would be worthwhile for UPS to establish a packaging process and supply business sort of like our retail storefront but designed for small to medium sized companies. It could be another feature in supply chain and logistics segment. We already have the package testing lab that would be helpful in the endeavor. Thoughts?
Per the above story, shippers are going to be looking at alternative options to lower the impact of dimension pricing coming next year. Here's my obvious observation. Having been in customer service for part of my career and therefore engaged in damage claims adjusting, more often than not poor packing was the problem with damage claims. It would seem that to minimize package size, the "extra" protection afforded such things as electronic devices or other more valuable contents of packages might be cutback. I guess what I'm saying is the shipper's solution to addressing dimension charges might be to lessen protection around package contents. Not good....