UPS Shares Off Highs After Pension Accounting Shift and Ahead of Q4 Earnings Release

Published on Monday, 30 January 2012 13:16 Written by J Hawk

New York, January 30^th (TradersHuddle.com) – Shares in Atlanta, Georgia based United Parcel Services or UPS (NYSE: UPS) were marginally lower in today’s trading session after the shipping company announced a change in its pension accounting policy last Friday as the share price approached 52 week highs. 

Before taking the stock to fresh highs, the market in UPS stock now seems to be treading water ahead of the company’s key fourth quarter earnings results, which are expected to be released tomorrow, January 31^st at 7:45am EST. 

According to a survey of 21 market analysts performed by Zacks Investment Research, the consensus earnings forecast for UPS is for earnings per share of $1.26 in Q4 2011. A slightly larger group of 22 analysts are calling for total 2011 earnings results of $4.25 per share.

The fourth quarter results for UPS includes its performance during the active December holiday shipping period, which contributes substantially to the company’s bottom line each year and is often considered an important economic barometer. 

Earlier today, the stock market had taken UPS shares as low as $75.50. Nevertheless, as of this writing, the stock had recovered some of its initial losses, and was trading down just-$0.24 or -0.32% on the day to the $75.80 per share level in relatively subdued New York Stock Exchange trading volume of 944 thousand shares.

Pension Plan Accounting Change May Boost UPS’s Earnings

The major package and freight shipping company reported last Friday that it would move to adopt a more transparent mark-to-market method when accounting for expenses incurred by its corporate pension and retirement benefit programs.  The change is not expected to affect pension benefits, plan funding or corporate cash flows.

According to UPS, this new accounting method is consistent with GAAP in the United States and will involve recording actuarial profits and losses on the firm’s income statement for the year incurred, rather than having them amortize over time.

Furthermore, the company’s mark-to-market adjustments will occur in fourth quarter results each year and will show the actuarial profits or losses falling beyond a ten percent recognition corridor of the larger of plan assets or benefit liabilities. Such profits or losses come from discount rate changes, reconciling returns on plan assets, and additional actuarial assumptions.

Several analysts have upped their earnings estimates for UPS in recent weeks. In particular, J.P. Morgan’s stock analysis group was reported to have increased its price target to $86 per share for the stock, as well as raising its earnings estimate for UPS due to anticipated lower pension costs.

The Technical Picture for UPS Remains Bullish

From a technical perspective, UPS’s share price has shown a long term upwards trend after bottoming out at the $37.99 level in March of 2009.

Nevertheless, after peaking at its 52-week high point of $77.00 on February 11^th of 2011, the stock then traded correctively lower during the first half of 2011. It then started to rise steadily once again after forming a base in the $61 region during August and September of last year.

In recent trading sessions, the stock has almost recovered to its 52-week peak by trading up to the $76.51 level on January 27^th before selling pressure emerged ahead of resistance at the $77.00 level to take the stock correctively lower.

Initial resistance is noted at $76.51 and $77.00, and above that at $78.99, $79.72, $83.99 and $89.11. Support for the stock shows initially at $74.46 and $73.00, and below that at $70.38, $66.46 and $61.12.