UPS Unveils Transformation Plan To Boost Earnings

UPS Unveils Transformation Plan To Boost Earnings
September 14, 2018


The stock of United Parcel Service Inc. (NYSE: UPS) declined by 2.92% yesterday to close at $119.70 after the company revealed its transformation plan and earnings outlook growth for 2022, which was just in line with analysts’ expectations.  Last November, the logistics firm created a new position of chief transformation officer (CTO), who would be responsible for inducing a change in the company. The CTO was tasked with the goal of identifying new tactics that UPS could use “for the greatest strategic benefit and long-term shareholder return.” The UPS laid down hard figures to that famed plan yesterday.


UPS transformation plan

The Atlanta-based company unveiled its four strategic imperatives at the Transformation Conference in New York, which are as follows:

  • Expanding high-growth global markets;
  • Fueling growth of business-to-business and business-to-consumer e-commerce;
  • Penetrating healthcare and life sciences logistics market; and
  • Improving services for small- and medium-sized businesses.

Additionally, the transformation plan also includes over 70 package facility expansion projects and the establishment of seven new “super hub” mechanized sorting facilities that could result in a 30% to 35% increase in operational efficiency, in comparison to other semi-automated facilities. UPS anticipates incurring charges of $550 to $750 million to implement the transformation plan.

With the initiatives mentioned above, UPS hopes to add sortation capacity of 350,000 to 400,000 pieces per hour in the U.S. in 2018, 2019 and 2020.

The company said forecast increase in capacity “is about seven times the additional sortation capacity added in 2017, alone.”

The U.S. division will gain nearly two-thirds of the transformation program benefits.

UPS announced that it is also working to increase its overall capacity as it expects the global package market to grow by $300 to $480 billion through 2022. The company’s focus is now also on expanding in Asia, emerging markets and Europe.

Scott Price, UPS Chief Transformation Officer, believes that global e-commerce is a “megatrend” and envisions “tremendous opportunity.”

While explaining global trends, the company’s Chief Market Officer, Kevin Warren, stated that he expects a 28% rise in cross-border e-commerce in the next three years. The B2B e-commerce sales are anticipated to reach $1.20 trillion in 2021.

Commenting on the transformation plan, Chief Executive Officer David Abney said: “We are implementing changes that strengthen the ongoing core earning power of the company. The savings we achieve will be reinvested in the company and its people, and will be used to reward shareowners.”

The company stated that the $20 billion transformation plan is expected to increase adjusted earnings in the range of $1 to $1.20 a share by 2022, mainly due to cost savings. UPS, additionally, currently forecast that the FY18 earnings will be in the range of $7.07 to $7.37 per share. Analysts expect UPS to report earnings of $7.25 per share for the current fiscal year. Presently, the company offers a dividend yield of 2.94%.

Investment firm Morgan Stanley anticipated a decline in the share price, following the announcement of the transformation plan. Morgan Stanley’s analyst, Ravi Shanker, explained the reason for the decrease as follows: “A base case outcome of a $1 billion in higher earnings in three years is estimated to be worth roughly 10% to the stock today. Given the high expectations built into the stock together with the lack of long-term guidance, we believe the stock could trade off about 2% in this scenario.”

Morgan Stanley expects the stock to decline to about $92 over the period of 12 months. The disappointment caused due to the earnings forecast may affect the company in the short-term.

Technically, the stock still trades above its 50-day moving average, and the MACD indicator is in the positive zone. Extreme caution is therefore required while going short. A strict stop loss order is needed.

UPS - technical analysis - 14th September 2018

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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