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UPS stock falls on good 4Q
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January 31, 2000: 2:45 p.m. ET
Beats forecast by 1 cent a share, but results fail to support premium price
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - United Parcel Service's Wall Street honeymoon appeared to come to a rude end Monday, as it reported slightly better-than- expected fourth-quarter results for its first quarter as a publicly traded company, only to see its stock plunge as a result.
The Atlanta-based parcel delivery giant did far better in the quarter than competitors and other transportation companies, overcoming rising fuel prices with strong growth in volume and revenue.
For the quarter, UPS (UPS: Research, Estimates) earned $661 million, or 56 cents a diluted share, compared with the year-earlier quarter with earnings of $482 million, or 43 cents a diluted share. Analysts surveyed by earnings tracker First Call Corp. had been expecting 55 cents.
But its stock has traded at a premium multiple since its Nov. 10 initial public offering raised a record $5.47 billion, and investors were apparently not satisfied with its solid yet unspectacular results. The stock opened lower and fell 4-15/16, or almost 8 percent, to 60 in afternoon trading, a new low since the first trade after the IPO.
"They're doing everything we expected of them - they're improving margins, taking market share from competitors," said Edward Wolfe, analyst with Bear Stearns, "But there was a sense this should have been a much bigger blow out than 1 penny (above expectations), so there's some momentum leaving the stock."
Wolfe said he believes that there won't be many downgrades of earnings expectations by analysts, many of whom, like Wolfe, had neutral ratings due to the high price. First Call puts estimates at $2.32 a share in 2000 and $2.64 in 2001, although Wolfe's estimates are somewhat below that consensus.
"My view on the stock is that on fundamental it can trade in the 65-to-70 range, but it's been trading above fundamentals," he said.
Company officials would not comment on earnings estimates for 2000 or 2001.
UPS sees gains across business units
UPS saw gains across its different business sectors: domestic and international; express and deferred shipments; and even its non-package business.
It said that it saw strong growth in residential delivery of goods bought online during the holiday period, although it could not quantify that number. But it said its customers with strong e-commerce sales operations were among those that had the best growth in volume. UPS' leadership in the home delivery of goods bought on the Internet was a major driver of investor interest in its IPO.
The company's operating income from domestic operations gained 20.5 percent to $965 million, while operating income from international shipments more than doubled to $82 million from $37 million a year earlier.
Non-package operating income, which includes services such as excess value insurance and managing customer's supply chains as a third-party logistics provider, posted even better growth than international operations, up to $83 million from $30 million.
Overall revenue rose 12 percent to $7.5 billion, from $6.7 billion a year earlier. UPS had a 10% increase in domestic package revenue, a 15% increase in international export revenue and a 71 percent gain in non-package revenue.
Strong volume overcomes fuel hike
The company overcame a 30 percent increase in fuel prices during the quarter to post its record results. It did so partly because fuel equals less than 3 percent of the company's overall revenue. UPS depends more on trucks and trains than fuel-guzzling planes to move packages, especially when compared to carrier competitors such as Federal Express Corp. and Airborne Express.
While UPS has announced a rate increase for 2000, it has no plans to seek a fuel surcharge, such as those announced by FedEx or Airborne, as well the nation's nine largest passenger airlines and many major trucking companies.
Fuel increases depressed the earnings of FedEx Corp. (FDX: Research, Estimates) in its fiscal second quarter, which ended Nov. 30. It will also hurt the results due out Monday from competitor Airborne Freight Corp. (ABF: Research, Estimates), the operator of Airborne Express, which has warned of disappointing lower earnings due to fuel prices. Airborne said Jan. 20 that its earnings would being in the range of 30 to 35 cents a share, compared with what had been an estimate of 48 cents a share and record year-earlier results of 78 cents a share.
Quarter caps solid annual result
For the year, the company had earnings of $2.3 billion, or $2.04 a share, up a third from earnings a year earlier. That number excludes a $1.4 billion figure for one-time items related to a possible tax charge from offshore insurance operations.
Including the one-time item, net income for the year was $883 million, or 77 cents a diluted share, compared with $1.74 billion, or $1.57 a share, in 1998. Revenue for the year was $27.1 billion compared with $24.8 billion in 1998. 
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