What Makes United Parcel Service's CFO Say "Europe's Here to Stay"?

If you heard management speak at United Parcel Service's  (NYSE: UPS  ) latest conference call, they sounded very upbeat about Europe. This might be surprising because although the region's economy is slowly waking up after the recession, it could take some more time before the pace of growth gathers steam. In the first quarter, the eurozone grew just 0.2%. So what warrants the kind of enthusiasm that was audible in the words United Parcel's top bosses?

Source: Flickr

Better trade prospects and growing optimism
The European Central Bank, or ECB, is formulating several reforms in its monetary policy to fuel economic growth. These could include cutting the interest rate, imposing negative interest on banks for holding excess cash, and offering loans to banks at reduced rates. The ECB meets on June 5 to announce these economic stimuli. The reforms could trigger an influx of fresh investments and drive trade -- something that could boost demand for delivery services.

United Parcel entered Europe three and half decades back in 1978, and derives more than half of its international revenue from there. It has the second-largest market share in the European delivery market after German delivery giant Deutsche Post (NASDAQOTH: DPSGY  ) , and stands to gain from this development. The chart below shows the market shares of the major players in the European delivery market.

Courier market share in Europe

Source: Deutsche Post Investor Presentation May 2014.

United Parcel's confidence in Europe is shared by domestic rival FedEx (NYSE: FDX  ) . FedEx is in an expansion mode and recently hit a milestone by opening the 100th station in Spain to widen its local reach in Europe. Currently, the Tennessee-based courier major is in the second phase of expansion where it's more focused on enhancing its capabilities by widening network and offering more customer solutions.

Exploding e-commerce
Europe's offering a huge opportunity in e-commerce. The following stats compiled by Ecommerce Europe, an association of more than 5,000 e-retailers, provide some good insights about the growing popularity of e-commerce in the continent:

  • Around 820 million people live in Europe of which 25% are e-shoppers
  • Average spending per shopper is roughly 1,450 euros
  • Total B2C e-commerce sales in Europe grew 16% to 359 billion euros in 2013
  • There are approximately 550,000 online businesses
  • Approximately 3.5 billion parcels are delivered annually

To tap this opportunity United Parcel has made big investments and acquisitions. It acquired Brussels-based Kiala in 2012. The Kiala network provides a platform that enables e-commerce retailers to deliver products at retail spots known as access points that are convenient for customers. Kiala's technology combined with the United Parcel's strong transport network has given the latter a good edge in the e-commerce segment.

The company plans to increase the number of access points to 3,000 each in the U.K. and Germany. France already has 4,200 access points. According to Ecommerce Europe, these three countries account for 79% of Europe's total e-commerce sales.

Growing intra-European export
Foreign direct investments, or FDIs, have started increasing in Europe and according to a study by Ernst & Young, FDIs totaled 223 billion euros in 2013, 25% higher than 2012. Intra-European investments accounted for more than half of the total FDIs, up 4% from previous year. This is boosting shipments between European countries and fueling demand for courier services.

United Parcel has 450 facilities with around 8,700 delivery vehicles and more than 200 planes for intra-continental delivery. In the last fiscal year, the company's daily average package volume increased by 6.4% to 1,034,000, primarily backed by the growing volume of intra-European trade. Even in the latest first quarter, its sales from intra-European exports grew more than 15%. This drove a 5% increase in U.S. logistics giant's international revenue to $3.1 billion during the period.Sensing the opportunity, United Parcel has spent $200 million to increase capacity in its air hub facility located in Germany by 70% to 190,000 packages per hour. Cindy Miller, President of UPS Europe, said "With this upgrade, we now have the equivalent of 15 football fields of sorting space for a growing export economy on the move".

In a similar move Deutsche Post also intends to invest in delivery infrastructure and double its existing capacity at Leipzig, Germany. After the unit is operational, the company plans to churn out 150,000 packages an hour. 

Foolish last words
United Parcel's commitment to Europe was put into words by CFO Kurt Kuehn at the latest earnings call when he said, "Europe's here to stay." Although the GDP growth is taking time to pick up, better trade prospects, growing e-commerce, and increasing FDIs are making Europe a sought after destination among delivery companies. United Parcel is consolidating its strengths in the continent through acquisitions and capacity additions, and is well prepared to capitalize on these developments.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2971805, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:28:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

ICRA Online

ICRA Online provides data, research, and analytics solutions. Our research team of accountants, management graduates, and media specialists, does in-depth company analyses, going beyond news, and diving deep into numbers. We write on industrial sectors like automotive, aerospace, and machinery, making it our business to take a 360 degree view of every company we cover.

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:00 PM
UPS $97.65 Down -0.99 -1.00%
United Parcel Serv… CAPS Rating: ****
DPSGY $27.64 Down -0.02 -0.07%
FDX $150.61 Down -1.89 -1.24%
FedEx CAPS Rating: ****