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UPS: Management’s Expectations about the Near-Term Future

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Top line

In this part, we’ll take a quick look at United Parcel Service’s (UPS) key financials. UPS’s top line has grown steadily over the years. From a revenue of $42.5 billion in 2005, its latest reported revenues for fiscal 2015 totaled $58.3 billion. This represents a CAGR (compound annual growth rate) of 3.25%.

UPS enjoys the top position in the US market. Much of its revenue growth has come from its US operations in the last ten years.

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Robust cash from operations

UPS’s cash from operations has gone up from $5.5 billion in 2006 to $7.4 billion in 2015. Over the last ten years, the company was able to generate substantial operating cash inflows. The company funds its capital expenditure through its operating cash inflows.

The cash flows were also negatively impacted from 2006 onward due to the ratification of UPS’s collective bargaining agreement with the Teamsters. The company also utilizes the cash from operations to repurchase shares and dividend payments.

Management outlook

UPS has effectively executed its peak-season operating plan in 2015. The company’s management expects its adjusted 2016 EPS (earning per share) growth of 7%–11% on revenue gains of 6%–8%.

The domestic and international package segment’s volume growth is expected to be 2%–4%. Improved yield management, network efficiency, and productivity actions should push the operating profits by 5%–9%.

Investing in ETFs

Logistics and transportation companies form part of the industrial sector. Investors interested in indirect exposure to the logistics sector can invest in the SPDR S&P Transportation ETF (XTN). This ETF also invests 2.57% in UPS. Its prime competitor in the US, FedEx (FDX), makes up 2.78% of the XTN’s portfolio. The other major transportation companies like XPO Logistics (XPO) and JetBlue Airways (JBLU) are included in XTN’s portfolio.

In the coming article, we will see where UPS fits in terms of its debt levels in the peer group.

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