Can FedEx UPS Capitalize on 2015 Holiday Season?

With Thanksgiving and Black Friday having recently passed, and Cyber Monday today, parcel delivery service providers such as FedEx Corporation and United Parcel Service, Inc. would be closely eyed by investors.

Martin Blanc of Bidness Etc takes a look at whether preliminary statistics support the prospects for the two delivery giants.

Delivery stocks have started to come on investors’ radars during the holiday season largely due to the advent of e-commerce.

As customers increasingly shop online, rather than at brick-and-mortar stores, companies such as Amazon.com make use of delivery service providers to get orders to their customers’ doorsteps, or a collection center.

The National Retail Federation (NRF) estimates holiday season online sales to grow by an estimated 6-8% this year. Moreover, in a release yesterday, NRF said that 121 million holiday shoppers were expected to shop on Cyber Monday - designed to promote online shopping. Citing data collected through a survey by Prosper Insights & Analytics, the NRF reported that an estimated 103 million people shopped online on Thanksgiving weekend.

According to Prosper Insights’ findings, most of the demand would be realized during the morning. 42.4% of total customers said that they would be shopping in the early morning hours today, while 33% said that they would choose to shop online in the late morning.

Given the statistics and expectations, the demand for online retail, or e-tail, during the holiday season is expected to remain robust this year. In its latest earnings release, FedEx Corporation said that it was expecting this year’s holiday season to bring record demand with it.

Having said so, the question during the holiday season is not of whether the companies would be faced with rising demand or not. The more pressing matter is whether they would be able to meet the heightened demand. Both corporations have faced problems during the holiday season in the past.

2013’s holiday season had proved to be disastrous for both UPS and FedEx, as they struggled to keep up with delivery demand. An estimated 2 million packages were left undelivered during the holiday season that year, as the boom in e-commerce created an overwhelming demand for package deliveries. To aggravate matters,most orders were made at the last-minute, clogging the companies’ network capacity from fulfilling demand that year.

In a reversal of scenario, UPS had prepared well in advance for the holiday season last year, to avoid a repeat of the earlier year’s debacle. It also announced that it would not be entertaining any last-minute orders to keep its operations afloat during the peak season.

However, demand that year fell short of the company’s anticipation. As a result, the company warned investors ahead of its fourth quarter earnings, that it would report earnings per share of $1.25, compared to analysts’ estimates of $1.46 at the time. The company had invested heavily going into the holiday season, and was not able to break-even on the costs.

UPS and FedEx expect to deliver 630 million and 317 million packages between Black Friday and New Year’s Eve this year, respectively. UPS’s projections estimate a 10% year-over-year (YoY) increase, while FedEx estimates a 12.4% YoY increase.

In preparing for this year’s holiday season, UPS and FedEx were reported to have brought onboard 95,000 and 55,000 temporary employees, respectively. Furthermore, FedEx’s Ground Services spent an estimated $1.6 billion on capacity and automation to cater to the increased demand.

Bidness Etc believes that demand would continue to remain strong for FedEx and UPS’s services as customers shift from brick-and-mortar to e-commerce. The companies have been planning for the holiday season for months now, but it remains to be seen whether the preparations were enough.

Source: Bidness Etc

Related: Shipping Companies Gain an Edge During Holidays