The holiday season should be full of good cheer for
Both shippers are expected to benefit from the growth of online retailing, which is outpacing traditional retail sales. Most Web sites rely on the two big shipping companies to get goods to customer doorsteps. What's more, early indications of retail sales in general are robust -- with the notable exception of
-- which should also boost business, as some consumers send brick-and-mortar purchases via UPS and FedEx.
Online retail spending for the day after Thanksgiving, called "Black Friday" by retailers, jumped 41% from last year, according to comScore Networks, a Reston, Va., company that tracks Internet activity. That's well ahead of Friday's 11% increase for brick-and-mortar stores monitored by ShopperTrak of Chicago, even though experts viewed ShopperTrak's numbers as strong.
For the entire holiday shopping season -- November and December -- comScore predicts 23% to 26% year-over-year growth in cyber-sales -- a much quicker clip than the National Retail Federation's 4.5% forecast for the broader industry.
"As more retail transactions take place on the Web, those transactions benefit UPS and FedEx directly," said Mark Davis, an analyst at FTN Midwest Research, which is based in Cleveland.
Last month, UPS said it expected to ship more than 340 million packages during the peak season between Thanksgiving and Christmas, greater than its 300 million forecast last year. The company also said it expected to hire 70,000 seasonal workers in the U.S. to handle extra holiday volume, up from 50,000 predicted last year. (UPS hasn't disclosed what last year's actual numbers were, though a spokesman said the company spends a lot of time developing its forecasts, so they tend to be accurate.)
FedEx won't say how many packages it expects to deliver through the whole season, but the company predicts it will ship 7.7 million items on what it expects to be its peak day, Dec. 13, up from 7.5 million on Dec. 15, last year's busiest day. The company expects an even sharper increase in its FedEx Express unit, with 4.6 million packages forecast for the peak night of Dec. 20, up from 4 million on 2003's peak night of Dec. 22.
The types of items holiday shoppers have been scooping up could bode well for FedEx and UPS.
"They deliver higher-value, lower-density goods like computers, CDs and jewelry," said Donald Broughton, an analyst with A.G. Edwards. "If you look at the holiday sales statistics so far, it appears this holiday is going to be strong, but the stronger spending won't necessarily be reflected at Wal-Mart or
. It appears it will be reflected at
. If that's the case, UPS and FedEx should do very well." (A.G. Edwards or an affiliate received non-investment-banking compensation from UPS over the past 12 months. It did not receive compensation from FedEx during that time.)
Shareholders won't get a look at UPS' holiday financial performance until January, when it releases results for the quarter ending Dec. 31. In mid-December, however, FedEx will report its second quarter, which ended Nov. 30, and that could provide an early glimpse of holiday trends, according to Broughton. In addition to reflecting online purchases early in the holiday season, the company's numbers will include the shipping FedEx did ahead of the holidays for manufacturers such as Dell with just-in-time inventory practices.
"You think of the last-minute item that gets shipped, but that's the last link in the supply chain," Broughton said. "If I buy a Dell computer to be delivered to my house as a gift for my kid, sure, FedEx may make that last-leg move on Dec.13, but all of the pieces that went into the computer all got moved in October and November."
The consensus Wall Street analyst estimate is for FedEx to earn $1.27 a share on $7.03 billion in revenue, according to Thomson First Call.
Even though the holiday season should prove strong for the two shippers, analysts said their share prices likely account for that expectation.
"I think it's pretty much cooked into share prices already," said Arthur Hatfield, an analyst at Morgan, Keegan & Co. who rates FedEx outperform and UPS market perform. (Neither Hatfield nor his firm owns shares in FedEx and UPS. Morgan Keegan has done no banking business with either company in the last year, though it is seeking to do business with FedEx.)
Both companies' stocks have risen sharply since the middle of the year. FedEx finished Monday's session at $95.43, close to its $96.21 52-week high logged last Wednesday. UPS ended the session at $84.01, close to its 52-week high of $84.64 recorded Nov. 12.
Even though A.G. Edwards' Broughton is bullish on FedEx's long-term prospects, the analyst downgraded the stock from buy to hold in September because of its rising valuation. He also has a hold rating on UPS stock.