UPS Posts Solid Adjusted Fourth-Quarter Results; Sees Strong Package Delivery Growth in US

UPS posted fourth-quarter results Tuesday that reinforce our long-held thesis that the US will avoid a double-dip recession despite problems within the Eurozone. We are maintaining our fair value estimate for the package handler. UPS delivered record fourth-quarter results in volume, revenue and profitability—hardly recessionary signals. Revenue in its fourth quarter jumped 5.6% as the company delivered 1.13 billion packages (up 3.6% from the same period a year ago), while adjusted operating margin expansion of 140 basis points pushed adjusted diluted earnings per share higher nearly 21%, to $1.28. The company saw increases in both US and international daily package volume thanks to robust e-commerce expansion, strong European exports and intra-regional growth in Asia. During 2011, UPS pulled in more than $5 billion in free cash flow, and we expect continued cash-flow generation to support dividend increases and share repurchases in the years ahead. For 2012, specifically, UPS is looking for diluted earnings per share to expand to the range of $4.75 to $5 per share (versus consensus expectations of $4.80), up 9% to 15% over 2011 performance. We think the high end of this range is achievable.