Will FedEx Ship Profits to UPS?
Will FedEx Ship Profits to UPS?
International business at UPS has grown at seven times the rate
of its domestic business.
Guy Adami
Sep 20, 2007 11:15 am
Yesterday, I did a "shoot" for the show Fast Money at the United Parcel
Service (UPS) mega-plant on the west side of Manhattan.
I got dressed in the full rig, and except for my white socks I was a
standard issue UPS delivery person.
What struck me immediately was how meticulous UPS was about everything.
Seemingly nothing is left to chance, right down to the driver honking his
horn prior to moving in reverse 100 yards from the nearest human being as
the entire floor was empty except for me and our small crew.
Now the obvious knock on a company like UPS is going to be energy costs. And
after watching close to 500 or so trucks drive out of the 43rd Street
facility one after the other, it is easy to see why. But although I was not
able to drill down to the core of UPS' energy hedging strategy a new
technology has been implemented to offset some of its fuel costs. UPS calls
it Package Flow Technology.
According to its website:
"...using historical, forecasted and exceptions information, package flow
technologies create a dispatch plan for every driver working out of the
package distribution center. The system helps package center management
ensure that drivers are not over-dispatched and that last minute load
changes to a driver's package car are minimized".
Basically, it allows the drivers to take the most direct routes possible
while virtually eliminating left hand turns (and if you drive in NYC you
know how important that is).
Now Federal Express (FDX) reported this morning and although it beat its 1Q
EPS consensus, its guidance for the rest of the year was less than stellar
and its comments about the overall economy were less than optimistic. While
that does not bode particularly well for UPS, I for one think it is somewhat
mitigated by two factors.
First, the international business at UPS has grown at seven times the rate
of its domestic business. Asia alone has seen double digit growth, over 25%
last year. FedEx is still trying to get its "sea legs" on the international
front.
Second, if you believe that The Federal Reserve Bank just saved Christmas,
then things at Amazon (AMZN) should be set up perfectly for a record holiday
season. This plays right into the strength at UPS, as during the gift giving
time of year, roughly three out of four packages at UPS distribution centers
have an Amazon.com label on them!
To the extent that weakness in FedEx pressures UPS, I, for one, would look
at it like a buying opportunity. The $70 level in UPS should provide some
solid support and I think the stock has been overlooked by the Street, which
only looks at FedEx as a proxy for the space.