(UPS) United Parcel Services Raises Freight Rate

United Parcel Services (UPS) has increased its freight rates by 6.9% on non-contractual shipments. The increase is effective August 1, in the U.S., Canada and Mexico.

The company offers a variety of less-than-truckload (LTL) and truckload (TL) services to customers through its Freight segment, which remains a significant revenue contributor. The gradually improving economy is supporting the broader market and the company remains well positioned to benefit from firming industrial fundamentals and LTL industry pricing discipline.

Continued focus on improving pricing signifies UPS’ initiative to substantially better its earnings power over the next several years. In early 2011, the company increased its general rate by 4.9% for ground packages, air express and U.S. origin international shipments in an effort to solidify revenue generation along with yield expansion in the three product lines.

Likewise, the current price hike should also support UP long-term goal of robust revenue and margin expansion and earnings improvement.

Apart from the pricing improvements, United Parcel is undergoing a series of initiatives that is expected to deliver industry leading margin and earnings growth over the long term. Key among these is a renewed focus on yield improvement in the U.S. Domestic Package division.

Other drivers include increased export volumes, operating leverage benefits on 35–40% capacity expansion at Worldport and the flexible Teamster contract. Further, the company continues to expand its footprint in emerging markets such as the health care end market, which could be a larger contributor to growth in the future.

We believe the growth initiatives will aid the company to deal with near-term headwinds such as surging fuel prices, substantial capital investment and high labor unionization. These would give UPS a competitive advantage over its peers like FedEx Corporation (FDX).

We are currently maintaining our long-term Neutral recommendation on UPS. The stock retains the Zacks #2 Rank (Buy) for the short term (1–3 months).

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