Summary:
United Parcel Service, or UPS, performed impressively in the third quarter of 2014, reporting higher than expected earnings and revenues. Growth was witnessed across all the segments of the company. We believe that the company's strategic investments, technology-backed operations and enhanced worldwide network will strengthen its market position and safeguard shareholder value against unfavorable market dynamics. The improving economic scenario is also benefiting the company. We remain concerned about threat from competitors. Labor unionization is another challenge confronting the company. We believe that the stock is fairly valued at current levels with limited scope for upside. Consequently, we retain our Neutral recommendation on the stock.

Overview:

Based in Atlanta, United Parcel Service, Inc. is the world's largest express carrier and package delivery company. The company provides specialized transportation and logistics services in the United States and internationally. UPS offers a range of supply chain solutions, such as, freight forwarding, customs brokerage, fulfillment, returns, financial transactions, and repairs. UPS transports millions of packages each business day across the globe.

UPS operates a ground fleet of approximately 101,000 vehicles in the United States. The company also operates an air fleet of 523 aircraft. Its primary air hub is in Louisville, KY. Regional air hubs are located in Hartford, CT Ontario, Canada Philadelphia, PA, and Rockford, IL. Its international air hub is in Cologne, Germany, while other hubs are located in Miami, FL Canada Hong Kong Singapore Taiwan China, and the Philippines. The company operates a global transportation infrastructure and offers a portfolio of services.

UPS has the following three core business segments:

The U.S. domestic package operations (accounted for about 61% of 2013 revenue) involve ground delivery services, deferred air delivery, and next day air services.

The International package operations (22%) encompass delivery of letters, documents and packages to more than 220 countries and territories worldwide, including shipments outside the U.S. as well as shipments from or to the United States with another country as the destination or origin point.

The Supply chain and freight segment (17%) is engaged in logistics, excess value package insurance, and freight and ancillary services. The forwarding and logistics business provides services in more than 175 countries and territories worldwide, and includes supply chain design and management, freight distribution, customs brokerage, mail and consulting services. Freight segment offers a variety of less-than-truckload (LTL) and truckload (TL) services to customers in North America. Other business units within this segment include Mail Boxes, etc. (the franchisor of Mail Boxes, etc. and the UPS Store) and UPS Capital.

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