For example, United Parcel Service, Inc. (NYSE:UPS) has a fleet of over 500 airplanes and 100,000 trucks. That’s a big expense. Expeditors’ profit margin actually increased a full percentage point between 2008 and 2009. UPS, on the other hand, saw its profit margin contract two percentage points. Both companies remained solidly profitable, but one clearly has a notable advantage when the economy gets tough.
To be fair, UPS has an excellent history of operating its fleet at the highest possible level. That includes spending heavily on system to track and schedule its trucks and planes. This has enabled UPS to keep costs down and profits up. However, Expeditors simply doesn’t have to bother with the costs of running a fleet of vehicles.
Note that while these two companies compete, UPS has a big business in home delivery whereas Expeditors focuses on the business to business side. That allows UPS to benefit from growing Internet sales and makes it an interesting investment in its own right. The shares, however, are reaching new highs, so aggressive investors should be looking here right now.
More Direct
A more direct competitor to Expeditors is UTi Worldwide Inc. (NASDAQ:UTIW). However, UTi’s profit margins are mired in the low single digits while Expeditors International of Washington (NASDAQ:EXPD)’s profit margins are in the high single digits. Those thin margins led to red ink during the recession. Acquisition growth is a big part of the problem here.
While Expeditors has grown largely from within over time, UTi has made more use of acquisitions. Integrating a target’s computer systems and staff can be difficult and take longer than liked. As such, UTi has been focusing on streamlining its operations of late to better compete with industry leaders like Expeditors International of Washington (NASDAQ:EXPD).
Despite losing nearly $1.00 a share in the just ended fiscal year, UTi holds some appeal as a turnaround candidate. If it can improve margins, its asset light business could trend toward the profitability of Expeditors. That would materially improve results. Those seeking a turnaround play might want to take a look.
A Leader
Getting products from the factory to the store is a big business. Expeditors International of Washington (NASDAQ:EXPD) takes a unique approach and has a long history of growth and profitability, even during tough times. Add in the fact that it has no debt, and the company looks even better. The shares are well off of their highs, but still have solid long-term potential. That could make the current soft spot a nice entry point for growth minded investors.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington (NASDAQ:EXPD).
The article Shipping Without The Ships, Trucks, and Trains originally appeared on Fool.com.
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