UPS Inks Tentative Labor Deal: Ratification to Follow?

United Parcel Service, Inc. UPS received encouraging news on the labor front when the company inked a tentative deal with the International Brotherhood of Teamsters — a labor union  in the United States and Canada. Notably, this provisional agreement with the union (Teamsters Local 2727) pertains to the wage hikes, better healthcare, retirement and other benefits for the 1300 aircraft mechanics and related employees of this Atlanta-based company.

However, there is still some way to go before the deal becomes effective. We note that tentative agreements do not necessarily mean that the deal will be operational. The provisional deal inked by UPS will be voted upon by union members in September. It will be effective only if the voting result is favorable.

In the event of the deal being effective, the aircraft mechanics would be eligible for a significant pay raise including a 16% immediate hike. Moreover, they would get retroactive pay apart from a 3% raise evey year. Thus, making the aircraft mechanics at UPS better-paid than their counterparts at rival FedEx Corporation FDX as well as in the airline industry in the United States. The deal, on finalization, would also guarantee them lucrative healthcare benefits without any premium payment. Moreover, pension contributions would increase for the aircraft mechanics.

With so many benefits covered by the deal, it is natural that investor focus should remain on updates pertaining to the voting procedure and outcome of the deal with aircraft mechanics. A positive vote from the aircraft mechanics would mean a happy ending to the negotiations, which started four years ago.

Additionally, tentative deals with the company's freight workers and small package employees will also be voted on shortly.  The company would be hoping for favorable outcome as satisfied labor groups generally imply greater operational efficiency.

Price Performance

Shares of UPS have performed well over the last six months. The stock has gained 12.9%, outperforming its industry's 7% rally.

We believe that ratification of the above tentative labor deals will boost the stock further.

Zacks Rank & Key Picks

UPS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW and GATX Corporation GATX. While SkyWest sports a Zacks Rank #1 (Strong Buy), GATX has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest and GATX have rallied more than 76% and 34%, respectively, in a year.

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