UPS Removes Health Benefits

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Leading freight carrier, United Parcel Service, Inc. (UPS) recently announced that the company is removing health coverage facility for 15,000 of its workers’ spouses in order to trim costs. However, spouses who do not work and or lack health benefits by their own employers would continue to receive the UPS health coverage along with their children. Further, the company’s decision to cut health care cost is only limited to its white collared employees and will not affect the 250,000 Teamsters union workers in various countries.

UPS expects pension and health care expenses to increase this year from last year, resulting in substantial cost pressure in 2013.  As a result, the company is seeking various measures to reduce this cost burden. 

Apart from curtailing expenses, UPS is taking several other initiatives to improve its performance levels. UPS announced the expansion of UPS Worldwide Expedited service in more than 220 countries from 145 destinations. UPS Worldwide Expedited includes air service for international shipments and provides delivery within two-to-five working days. This would facilitate UPS’ customers with cost effective freight solutions across continents. The company expects its international segment to register revenue and daily volume growth of 4% to 5%.

Further, the company also introduced UPS Worldwide Express Freight, which offers shippers in key markets, day-definite, door-to-door freight shipment. The new service is expected to boost revenues for premium businesses in airfreight. The company is also seeking growth through Ocean networks by expanding the UPS Preferred LCL (Less-Than-Container-Load) service to key markets in Europe. We believe the introduction of new products and services adds opportunities for incremental revenue generation.

However, in terms of international markets, the company expects the Euro zone to remain sluggish. Given the heavy expansion plans through acquisition as well as organic growth, we remain wary of the strategies that the company is undertaking in terms of its European business. In Asia, economic uncertainty has increased, as China’s GDP and industrial production growth have slowed a bit.

Further, the company expects yield pressure to continue due to the changing business mix resulting from customer shift from premium products as they seek more cost effective logistic solutions. Although, UPS expects growth in full-year earnings per share, it has slashed its earnings per share estimates to the range of $4.65 and $4.85 representing year-over-year growth of only 3% to 7%. This is less than the company’s earlier forecast of $4.80 to $5.06 earnings per share, which represented an increase of 6–12% from the 2012 level. Lower earnings estimate was mainly triggered by the macroeconomic condition surrounding domestic business and premium B2B business of the company.

UPS, which operates with other carriers like FedEx Corporation (FDX), Atlas Air Worldwide Holdings Inc. (AAWW) and Radiant Logistics, Inc. (RLGT) currently has a Zacks Rank #3 (Hold).

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