FedEx Corporation (FDX) has registered record breaking sales with 19 million packages on Monday this week. As the holiday season has begun, freight-forwarding companies like FedEx and United Parcel Service, Inc. (UPS) are hopeful of a significant turnaround in their sales.
FedEx expects shipments to rise further from its peak level during the rest of the holiday season. It estimates sales to hit 280 million packages through Christmas, representing 13% growth from the previous year. In 2011, the company recorded highest one-day shipment of 17 million packages on December 12.
FedEx’ biggest rival UPS has also started gearing up for the peak season sales. Last year, UPS’ fourth quarter saw record sales owing to the holidays. The company expects similar figure this year from daily average shipment of about 15 million to 28 million packages on the peak day.
Moreover, an increase in e-commerce activities will also contribute to this growth story. The company is also counting on Black Friday and Cyber Monday sales alongside the conventional Christmas and Thanksgiving days. Given the estimated surge in fourth quarter sales, the company expects earnings in the range of $4.55 to $4.65 per share, up 5% to 7% year over year.
Apart from the hiring, both companies have also raised their freight rates. Recently, FedEx announced a hike in its shipping rates for ground and home delivery. The company increased rates by an average of 4.9%, effective January 7, 2013.
The average rates of FedEx Ground and FedEx Home Delivery will go up by 5.9%. However, the 1% drop in fuel surcharge will mitigate the effects to some extent. The rates of FedEx SmartPost are also expected to change.
In September, the company raised its shipping rates for FedEx Express by an average of 3.9% for U.S. domestic, U.S. export and U.S. import services. These changes will also be implemented from January 7, 2013.
Rate hikes have also been announced by UPS. The new rates will reflect a 4.5% hike for all UPS Air and U.S. origin international services. Further, UPS’ Ground services will now be costlier by 4.9%. The new service rates for 2013 will be effective from December 31, 2012.
Despite a looming economic outlook, FedEx and UPShave remained successful in implementing rate hikes given the strengthening of freight market fundamentals. We expect both these companies to benefit from rising volume and favorable pricing in the upcoming days. Subsequently, the rate hikes would also help in countering the current economic slump to some extent.
We are currently maintaining our long-term Neutral recommendation on FedEx and UPS. For the short term, both the companies have a Zacks #3 Rank (Hold).