In October, UPS reported third-quarter earnings of slightly more than $1 billion on revenue of $13.2 billion. Earnings per share of $1.06 reflect a 14% increase over the same quarter in 2010. The company was able to offset soft global markets and an export slump in Asia by improving U.S. operating margins slightly to 13.1%. Brown’s full-year 2011 EPS guidance is still $4.15 to $4.40.
FedEx, which next reports earnings on Dec. 15, reported fiscal 2012 first-quarter earnings of $464 million on revenue of $10.5 billion. Earnings per share of $1.46 are 22% higher than the same quarter last year. Although FDX’s operating margin improved overall to 7% from 6.6% last year, declining package volumes caused Express segment margins to slip to 4.4%, down from 6% last year. This unit’s performance will be the thing to watch when FDX next reports earnings. FedEx revised its full-year fiscal 2012 EPS slightly lower to a range of $6.25 to $6.75.
At around $68, UPS is trading about 12% above its 52-week low of $60.44 in August. With a market cap of more than $62.2 billion, the stock has a price/earnings-to-growth (PEG) ratio of 1.43, suggesting it’s overvalued. With a current P/E of 16.78, UPS’ multiple is a little higher than the sector average of 13.88 but still is pretty cheap. The stock has a current dividend yield of about 3%. Its one-year return is 1.8%.
At about $79, FDX is trading nearly 24% above its 52-week low of $64.07 in October. With a market cap of about $25 billion, FDX has a PEG ratio of 0.75, indicating that the stock could be undervalued. FDX has a current P/E of 14.77 and has a current dividend yield of about 0.5%. Its one-year return is -9.2%
UPS’ My Choice provides delivery alerts and delivery time frames, rerouting and rescheduling options, visibility tools and electronic signature release. Basic MyChoice is free, but UPS also offers premium services for a subscription fee.
FedEx has SmartPost; a residential shipping service designed for online and catalog retailers. With SmartPost, FedEx delivers to its transport hubs and the postal service manages local delivery.
Brown is bigger, it knows how to manage costs aggressively, and its logistics and supply chain management expertise will become increasingly valuable for business-to-business shippers internationally. UPS’ 3% dividend doesn’t hurt, either. The company’s huge investment in the Cologne air hub might weigh substantially on margins if Europe doesn’t pull out of its tailspin. But once the continent gets off the schneid, Brown’s international business will stronger — particularly if it can pick up TNT Express’ assets for a song. While FedEx is well positioned to gain from the Postal Service’s woes, it needs to stem losses in its higher-margin, premium delivery business in the U.S.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.