UPS (UPS) Beats Earnings Estimates, Sees Growth for 2012

Shares of Atlanta, Georgia based United Parcel Services (UPS: Charts, News) declined by -0.50 or -0.66% to $75.65 per share on Tuesday after the company reported fourth quarter net income dropped to $725 million or 74 cents per share from $1.025 billion, or $1.02 per share for the same period one year ago.

The results for the fourth quarter included a $527 million charge which involved a change in the accounting of pension expenses.

Revenue for UPS's fourth quarter rose 6 percent to $14.2 billion, versus $14.4 billion expected by analysts. The company's net earnings before the charge came to $1.28 per share, beating the consensus which called for earnings to come in at $1.26 per share.

UPS's fourth quarter results were most likely boosted by a robust December holiday shipping period, which contributed substantially to UPS's bottom line, and is considered to be an important barometer of economic activity by many analysts.

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Last Friday, the large freight and package shipping company reported its intention to adopt a more transparent mark-to-market accounting method for expenses incurred by its retirement and corporate pension benefits programs. The change in accounting for these expenses is not expected to affect plan funding, pension benefits or corporate cash flows.

The decision by UPS to adopt a mark-to-market accounting method to its pension and retirement programs puts the company on a par with other large U.S. employers such as Verizon Communications (VZ: Charts, News) and Honeywell (HON: Charts, News).

The new accounting method is consistent with GAAP in the United States, and according to UPS, will record actuarial profits and losses on the company's income statement in the year the expenses were incurred, instead of letting the amount amortize over time.

This type of accounting can be extremely advantageous to a company and can give the company a boost in earnings by removing large amounts of old pension losses from operations. The accounting shift will also have the effect of bringing the company closer to international accounting standards for pensions due to become effective in 2013.

In addition to reporting a better than expected quarterly profit, UPS also forecast growth of between nine and fifteen percent for 2012 as demand for its services and a growing online business in the United States continues solidifying. In a conference call with analysts, CEO Scott Davis stated that, "The U.S. is one of the few economies where expectations are greater than last year."

Other analysts have also been keen on UPS, upping their earnings estimates for the company in recent weeks. J.P. Morgan (JPM: Charts, News), for example has reportedly increased its price target for UPS stock to $86 per share as well as increasing its estimates for 2012 earnings, mostly due to the anticipated lower pension expenses.

Optimism at UPS is encouraging primarily because an economic recovery becomes evident in transportation and shipping companies before the rest of the economy follows suit. UPS will likely be on the forefront of companies profiting from a stronger economy in 2012.

Other News About UPS
UPS Delivers Record 4Q Results
UPS's own press release on fourth quarter earnings.
UPS Earnings Show Improving US Economy
Analyst correlates UPS earnings with a stronger U.S. economy. Other Stocks in the News
Amazon earnings OK, but stock slides 10%
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Published on Feb 1, 2012
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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