4 Billion More Reasons to Like UPS


There's at least one silver lining for UPS shareholders who are understandably miffed about the company's failed bid to acquire TNT Express. Thanks to the canceled deal, UPS now finds itself flush with cash. And it plans to pour billions of that treasure into share buybacks in 2013.

It's true that the delivery giant would rather have won the deal. Until just a few weeks ago, UPS was ready to fork over almost $7 billion for the Dutch delivery firm, which would have given it a huge presence in Europe. But regulators nixed the purchase on antitrust grounds, worried that it could unfairly lock out competitors like FedEx from the parcel delivery market. UPS will have to find another way to expand its global footprint.

Still, the canceled bid does free UPS to deliver tons of additional cash to shareholders now. That's why it's no surprise that the company just tripled its forecast for share buybacks in 2013, from $1.5 billion to now $4 billion. By comparison, it spent just $1.6 billion on share repurchases last year.

The company's holiday-quarter results also left UPS with plenty of financial flexibility. It generated $5.4 billion of cash flow in 2012, after accounting for capital expenditures of over $2 billion. Yes, operating margin ticked down by two-tenths of a percent, to 14.1%. But that still trounces FedEx's profitability, which has been trending at around 7% for the year.

And UPS saw solid volume growth, particularly in the U.S., where e-commerce activity is spiking. Overall, average daily package volumes rose by a healthy 500,000 packages in the quarter.

With major acquisitions off the table, shareholders can look forward to owning a greater piece of those solid business results as UPS draws down its pool of outstanding shares. And dividends will keep flowing as well. Shares yield close to 3% right now, on a high, but supportable, payout ratio of 64%.

UPS' management might not be happy about missing out on the TNT Express deal. But as far as second-best options go, shareholders have plenty of reasons to be pleased.

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The article 4 Billion More Reasons to Like UPS originally appeared on Fool.com.

Fool contributor Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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