United Parcel Service (UPS) fourth-quarter results were a bit painful, what with a $3 billion charge to reflect more conservative assumptions on pension assets. With 400,000 employees, and 250,000 of them Teamsters, this is a company that is very vulnerable to pension costs and accounting.
But, no doubt hoping to buoy investors, UPS management made a highly optimistic projection for 2013: per-share profit growth to between $4.80 and $5.06 a share, which would be up from 2012 results, excluding the pension unpleasantness, by between 6% and 12%. For a company that so completely reflects economic indicators here and abroad, that’s a remarkable expectation, given the growth in the U.S. isn’t expected much above 4% this year, if that, and Europe remains a recovering basket case.
As YCharts noted earlier this month, UPS is a remarkable company, a productivity machine that happens to be a huge employer of union workers, lifting output year after year. The market didn’t much like the earnings news.
But UPS isn’t a stock to own because of next week or next month or even next year’s results. It has enjoys a substantial moat (Warren Buffett’s term for barriers to entry) around its business; who’s going to replicate the ground and air networks UPS and FedEX (FDX) developed over decades. And international trade, which has its ups and downs, inevitably rises as people all over the world desire what their country doesn’t produce. And domestically, the shift from bricks-and-mortar to online shopping allows UPS volume to grow faster than the economy.
Any discussion of PE ratio right now is a mess, given the big charge, but UPS’s price-to-sales ratio is low, vs. historical levels, and the company is a cash machine, paying out a steadily and significantly rising dividend, with a current dividend yield of about 2.9%. Management also announced that UPS plans stock buybacks of $4 billion this year, vs. earlier estimates of $1.5 billion. That’s more than 5% of market cap and is part of what will put EPS up so much.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.
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