United Parcel Service (UPS) now expects fourth-quarter 2009 earnings to exceed its previous estimate of $0.58-$0.65 per diluted share, and come in between $0.73-$0.75. That’s a pretty limited range, and if the company comes through it will blow past analysts’ average estimate for the quarter of $0.63 and even surpass the highest analyst estimate of $0.68.
The company attributed the increase to “better-than-expected results in both domestic and international operations and savings through cost management.” UPS also expects results to continue improving throughout 2010 as the global economy gradually recovers.
That’s all good news for investors. The price is paid by employees, some 1,800 of whom will be restructured out of the company. UPS’s restructuring plan reduces its U.S. management structure, and the company expects to offer voluntary separation packages to about 1,100 employees. Most of the remaining cuts will come through normal attrition. UPS said it will not close any offices as part of the restructuring.
As a result of the layoffs, UPS will take a one-time charge in 2010, but did not estimate what the charge would be. The company said it would give details at its fourth-quarter conference call on February 2nd.
In November, UPS announced a 4.9% increase in 2010 rates for UPS Ground delivery and a similar increase on air express and U.S.-originated international shipments. The company also increased fuel surcharges for both ground delivery and air delivery.
Last year, the fuel surcharge for ground delivery from February 1 through March 1 amounted to 4%. For the month of January 2010, the fuel surcharge is 12.25% and is indexed to the reported cost of regular gasoline in the U.S. Department of Energy’s weekly report. Surcharges for jet fuel have increased from 11% to 19% in the same period.
The bottom line is that customers will pay more, employees will lose their jobs and UPS shareholders will receive higher returns. Today’s announcement has boosted the company’s shares in the first half-hour of trading by more than 6% to within reach of its 52-week high of $61.13.
UPS shares are still a bit rich compared with Federal Express (FDX). UPS’s forward price/earnings ratio is about 22.5, while Fed Ex comes to just under 18. Back in November, Fed Ex’s forward P/E ratio was 25.7, but then it reported that its fiscal second-quarter earnings were down 30% year-over-year. It doesn’t look like UPS will have that problem.
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