United Parcel Service, Inc. (UPS) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Steven, and I will be your facilitator today. I would like to welcome everyone to the UPS Investor Relations Second Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer period. It is now my pleasure to turn the floor over to your host, Mr. Scott Childress, Investor Relations Officer. Sir, the floor is yours. Scott Childress: Good morning, and welcome to the UPS Second Quarter 2021 Earnings Call. Joining me today are Carol Tomé, our CEO; and Brian Newman, our CFO. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements within the federal securities laws and address our expectation for the future performance or operating results of our company. These statements are subject to risk and uncertainties, which are described in detail in our 2020 Form 10-K, subsequently filed Form 10-Qs and other reports that we file with or furnish to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. For the second quarter of 2021, GAAP results include after tax transformation and other charges of $11 million or $0.01 per diluted share. Also in the second quarter, on April the 30th, we closed on the sale of UPS Freight, which triggered remeasurement of certain of our pension and post-retirement benefit plans. The remeasurement resulted in a $2.1 billion reduction in pension and post-retirement benefit obligations on our balance sheet, primarily due to higher discount rates. The vast majority of the remeaseurement impact fell within the corridor. So the impact to GAAP net income was negligible at approximately $3 million. Unless stated otherwise, our comments will refer to adjusted results, which exclude transformation and other charges. The webcast of today's call, along with a reconciliation of non-GAAP financial measures is available on the UPS Investor Relations website. Following our prepared remarks, we will take questions from those joining is via the teleconference. If you wish to ask a question, press one then zero on your phone to enter the queue. Please ask only one question, so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question. And now, I'll turn the call over to Carol. Carol Tomé: Thank you, Scott, and good morning everyone. Let me start by thanking all UPSers for their hard work and efforts. Our better not bigger framework is enabling consistently high service levels and producing improved financial results. Our team is truly moving our world forward by delivering what matters. More specifically, we are winning in the most attractive parts of the markets with new capabilities like our fastest ground ever weekend initiatives and improvements in our customer experience journey. We are continuing to deliver lifesaving COVID-19 vaccine and our healthcare growth initiative is gaining momentum. We are also driving sustainable revenue per piece growth through targeted revenue quality strategies. Brian Newman: Thanks, Carol, and good morning. In my comments today, I will cover four areas, starting with macroeconomic trends, then our second quarter results, next I'll review cash and shareowner returns, and lastly, I'll wrap up with some comments on our outlook. Okay, let's start with the macro. All major economic indicators remains strong with the economic recovery progressing faster than expected. In the second quarter, looking at IHS forecasts, Global GDP is expected to finish up 10.6% and U.S. GDP is expected to be up 12.5%. However, robust economic growth and high consumer demand is putting pressure on global supply chains and inventory replenishment. Operator: Our first question will come from the line of Ravi Shanker of Morgan Stanley. Please go ahead. Ravi Shanker : Great. Thank you. Morning, everyone. Carol, a few questions on enterprise customers. What was that growth or decline year-over-year in 2Q? Was that mostly again running into really difficult comps? Or have any enterprise customers changed their sourcing behavior in response to your pricing and surcharge strategy? And lastly, you said that you’re targeting large – you are going after targeted large enterprise customers in the future. What does that mean, kind of what’s the basis for that targeting? Thank you. Carol Tome : Thank you, Ravi for the question. On the enterprise customer behavior in the second quarter, it was largely impacted by SurePost volume and as Brian explained our SurePost volume was down 1.3 million pieces. That happened because many of our brick-and-mortar enterprise customers reopened their stores and as the economies reopened, customers went back to those stores. So, we actually anticipated this when we built our second quarter plan and in fact, the average daily volume performed better than we had planned at the beginning of the year. As we focus our efforts going forward, we are really leaning into those customers that value our end-to-end network and focused on value share, not so much volume share. As we discussed during our June investor conference, a package is not a package. They come with different characteristics and we are leaning into those packages and those customers that value our end-to-end network. Brian anything to add? Brian Newman : No, just Ravi, if you back out that SurePost volume that Carol alluded to we’d actually be up 4% in ground in Domestic business for the quarter. Ravi Shanker : Great. Any follow-up on larger ecommerce enterprise customers, kind of any update there versus the brick-and-mortar guys? Thank you. Carol Tome : So, we value our very large ecommerce customer that doesn’t have a storefront, as well as all of our enterprise customers and if I look at our very large enterprise customer that doesn’t have a storefront or much of a storefront, the percentage of our total revenue was about the same as it was in the first quarter. Ravi Shanker : Thank you. Carol Tome : You bet. Operator: Our next question will come from the line of Ken Hoexter of Bank of America. Please go ahead. Ken Hoexter : Great. Good morning. So, just looking at your volume comp, just to follow that discussion. Are you seeing the B2C deceleration? Or are your outlook on that B2C relative growth continuing to decline as you face these tougher comps? And then, just looking at the margin thoughts there, right? So you are looking for a deceleration in the margin. Maybe you could just flush that out a little bit. You kind of highlighted, Brian that your three thoughts on that, but maybe just kind of talk to Carol’s historical conservativism versus your thoughts on the extending cost that you see coming back online with the union costs? Carol Tome : Well, maybe I’ll comment on volume and then we’ll turn to cost. We were really pleased with the growth that we saw in our SMB customer in the second quarter. Last year, SMBs in the United States made up about 20% of our total revenue. This year it make up more than 27% of our total revenue. So we think that the capabilities that we are investing to grow this very important customer segment, they are further working. Now, If you look at the breakdown of SMB, 50% of the revenue was for commercial. 50% of the revenue was for residential delivery. So you can see a shift within SMBs. What you would expect as the economies start to reopen and we were very pleased with the growth that we saw in our commercial business. Looking ahead, we would expect the volume trends to be around the same in the third quarter and we are not into the process of giving you quarterly guidance, but we would expect the volume trends to be about the same in the third quarter and then volume up in the fourth quarter as we head into peak. Brian comments on cost? Brian Newman : Ken, on the cost front, I think I articulated what drove the 730 BPS of increase in the second quarter. If you look at the first half of the year, our cost per piece was about 6.5%. So, mid-single digit. I think we would anticipate that looking to be somewhat similar from a CPP basis in the second half of the year. We can unpack that for us if you want more detail. Ken Hoexter : No – no – no more detail. I was just kind of wondering your thoughts on the deceleration versus trying to be conservative with the outlook versus your thoughts on kind of the margin follow-through. Brian Newman : Well, I think from a cost perspective, Ken, one of the elements that’s driving that cost per piece is our union labor increase in August. So, when you look sequentially from the first half of the year to the back half of the year, it’s a fairly material number when you look at the market rate adjustments and the union increase. It’s a north of $400 million. So it’s about 150 BPS on the margin. Ken Hoexter : Very helpful. Thanks for the time. Operator: Our next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead. Amit Mehrotra : Thanks. Excuse me. Thanks, operator. Brian, just wanted to confirm or Carol, just wanted to confirm your comments that you are expecting total average daily volume in Domestic volumes to be down year-over-year in 3Q versus a similar rate in 4Q and then positive in 4Q? And then, also, maybe a little bit more of a bigger picture question, Carol, the company has paid - committed to basically paying down debt. The balance sheet, financial position has gotten better as some of these pension issues have kind of resolved themselves. I am wondering if you are opening up the company to maybe a more of a major acquisition over the next couple of years, is there an appetite for maybe significant M&A? And if there is, what are some of the areas and adjacencies that kind of make sense for how you see the company evolving over the next many years, that would be helpful as well? Thank you. Carol Tome : Well, Brian, what’s your comment on the volume and then, I’ll talk about the balance sheet. Brian Newman : Sure, Amit. Our current forecast that we are holding for the second half of the year is low-single-digit from an ADB perspective. So, I am not going to get into Q3 versus Q4 as there is a lot of movement right now in the market. But we had one each was about 4%. We are expecting low-single-digit, slightly lower than that in the second half. Carol Tome : And I think a lot of this on the volume side is still highly dependent on the inventory to sales ratio, isn’t it? We’ve been talking to our large customers about what they are seeing in their business and interestingly, one large brick-and-mortar customer told us they had 50 containers that were stuck in the port. And until those containers can get into their warehouses and into their stores, it’s hard to sell. So, there is a bit of an uncertainty out there. But we are going to control what we are going to control and we shared this back half view with you because we thought you should know what we are seeing and what we’re thinking about our business. On the balance sheet question Amit, gosh, from where we were a year ago, the financial condition of our company has greatly improved, even from the end of the year it’s greatly improved with our debt and pension liabilities down $10 million from the end of the year end and having a strong financial condition lets us all sleep well at night. So that we can lean into our customer experience and do the right thing for our people, for our communities and for our customers. As we think about our strategic opportunities ahead, we are opportunity-rich. So we are going to continue to lean into those 16 customer journeys that we’ve talked to you about, because we really think by improving the end-to-end experience, we get stickiness with our customers and can grow that value share that we are sticking to grow. Could there be a capability that might - we might want to acquire to enable or speed up those journeys? Perhaps. But we’re not seeing here building a large M&A war chest, if you will. In fact, risk and try to run the best business that we can. Now we do believe that cash belongs to the shareowners and not to us. We told you that at the beginning or at the end of this year, if you will, we have a new dividend payout target which is 50% of earnings. So, based on the guidance that Brian has shared with you today, that could imply a fairly nice use of cash when we announced that new dividend. We are also looking at re-entering the share repurchase market. This is something that we discuss with our Board every quarter. We have a Board Meeting next week. So, Brian shared with you in his prepared remarks that we are looking that as well. Amit Mehrotra : So is $1 billion a year the right target that you disclosed a month-and-a-half ago? Or is it now there is more upward bias on that, as you look forward? Carol Tome : So, I think as we reported, we generated more free cash in the first six months of this year than we have in any year and any time in our company history. So, with the debt-to-EBITDA ratio now of 2.1, things are looking good for UPS and our ability to return capital to our shareowners. So, when we get ready to change, how much you should put in your model for share repurchases, we’ll tell you. Amit Mehrotra : Okay. Thank you very much. Appreciate it. Carol Tome : Thanks. Operator: Our next question will come from the line of Allison Poliniak of Wells Fargo. Please go ahead. Allison Poliniak : Hi, good morning. So I want to dig into the Domestic revenue per piece a little bit more. I know you called out fuel. But you had also mentioned the surcharges which I believe are weighted more towards B2C, as well as some your revenue quality issues. Any way to break that down a little further? I am just trying to get a better sense of what the organic revenue quality impact is to that revenue per piece, if you could? Brian Newman : Hey, Allison, I’ll take that. So, when you look at the RPP in the quarter, we were up Domestic 13.4%. Two-thirds of that improvement came from customer product mix and surcharges. And as you think about the surcharges and the mix, the big driver of mix was SMB volume, which - it increased to 27.2% of our total mix. If you think back to last year in Q2, that was down at about 21.2%. So we’re on that journey at the Investor Day. We talked that we wanted to get north of 30% to hit the high end of our guidance. We’re well on the way of that journey and we feel good. Lastly, on the rate component. We are not even really halfway through the rate contractual negotiations as those contracts open back up. So there is still more gas in the tank across the three levers. Allison Poliniak : Great. Helpful. Thank you. Operator: Our next question will come from the line of Chris Wetherbee of Citi. Please go ahead. Chris Wetherbee : Hey. Thanks for the question. I guess I wanted to kind of comment that yield point for a second and maybe tie it into the domestic margin outlook in the second half of the year. So, low-single-digit ADV in the back half of the year, is that kind of way to think about it? I guess, you sort of maybe get mid single-digit yield growth. And then in the context of that SMB sort of step-up as well as B2B being up, I guess I am a little surprised to not see the incremental margins or implied margins in the back half of the year be a little bit stronger. So it sounds like there is some cost dynamics probably fuel sort of weighing in there a little bit. But could you help us unpack a little bit more some of those moving pieces maybe on the cost side or maybe something that’s going on within mix between B2B and B2C that kind of help us with the sequential progression of the Domestic margins in the back half of the year? Brian Newman : Sure, Chris. I’ll take a stab at that. So, the way I think about the second half of the year, when I say low-single-digit ADV, it’s really closer to the 1% range, RPP should be in sort of the high-single digits, 7-ish, 7.5 thereabout and then cost per piece is probably similar to what we saw in one each, which was in that 6.5 range. So that’s sort of from an algorithm perspective how the math plays out. There are a lot of moving pieces here from a CPP I mentioned the cost increases from the wage and union contracts. We’ve also gotten some market rate adjustments that are going in, in the second half of the year to remain competitive on a geographic standpoint. And then RPP, obviously, you’ve got that higher enterprise in B2C mix in the peak season. Carol, anything to add? Carol Tome : I think the peak season comment is right, because we will see mix difference. Brian Newman : That’s right. Carol Tome : We won’t see a higher penetration of enterprise than we have today. Chris Wetherbee : And just a quick follow-up, is the fourth quarter, do you assume that you can get Domestic margin expansion in 4Q during peak season this year? Brian Newman : We do. Chris Wetherbee : Thank you. Brian Newman : Thanks, Chris. Operator: Our next question will come from the line of Allison Landry of Credit Suisse. Please go ahead. Allison Landry : Thanks. Good morning. Obviously called out the cost headwinds weighing on Domestic margins in the second half. But you should start to lap costs related to the Saturday expansion and speeding up the network. So, does the 220 basis point headwind in Q2 related to this ease in Q3 and go away by Q4? So maybe if you could just sort of address some of the factors that are positive for margins? And just to clarify, so, is it fair to assume for both Q3 and Q4 that the spread between RPP and CPP should remain positive? Thank you. Carol Tome : So, I’ll start with the expansion of our weekend delivery, which we are so pleased with. And we commented that we saw 13% growth on Saturday in the second quarter. We are about half way through this initiative to reach 90% of the U.S. population by October of this year. We are expanding services in over 500 buildings, existing and new. So, we’ve got some more costs coming out of this in the third quarter, but then, as you point out, looking to lap that next year, which we look forward to. Brian Newman : Allison, just in terms of the margin and sequential performance, look, we plan for positive spreads between RPP and CPP on a quarterly basis. So, that’s our objective. It’s probably a little tighter in Q3 than it is four. And I just remind you the journey we are on, as I said in my prepared remarks, we are going towards that 12% by 2023. And I think at the Investor Day I had mentioned we want to be more than halfway there by 2021. The guidance of 10.1 versus the 7.7 last year, we had 240 basis points in the first year that leaves another 200 basis points over a two year basis. So I think we passed that 50% mark and we are confident that we’ll deliver that 12%. Allison Landry : Thank you. Operator: Our next question will come from the line of Helane Becker of Cowen. Please go ahead. Helane Becker : Hello. Thanks very much, operator. Hi everybody. And thank you for your time. I just have two questions. On the free cash flow, when you think about so much free cash flow in the forecast for greater free cash flow as you continue to see these improvements that you are talking about, do you worry about under-investing in the business and then having to invest later to catch-up to the growth that you’re seeing? And maybe you could talk a little bit more about that? Carol Tome : Yes, I am happy to talk to you about philosophically, then Brian, please add on. When we had our Investor Day back in June, we laid out a capital investing plan on the high side of about $14.5 billion between now and 2023. That’s based on what we know. If we have an opportunity to invest that returns, the kinds of returns that we are looking for, we’ll increase that capital. So we laid out what we knew. There is no gating factor here. We will continue to invest in the capabilities that are necessary to drive the business forward. Brian Newman : And I just, Helane, I just follow-up, we are still adding capacity when we look at the business. So, in terms of this year, we’ll bring on seven new retrofit lines, about 2 million square feet of space, 130,000 pieces per hour and it’s a journey. As Carol mentioned, we’ve got about a 60-40 split in terms of our buildings and facilities and capacity and future growth making 60%, maintenance 40% or less. So I think we will continue to evaluate. The thing I would highlight is, with ROIC going up to 28% on a full year basis, we are very happy with the returns that we are making in the business, as Carol mentioned with the excess cash, if we find areas to continue to invest and grow the business, we’ll certainly do that. Carol Tome : And we are also adding aircrafts, Brian, from a capacity perspective. Brian Newman : Sure. Carol Tome : We are thinking about, I think six aircrafts between now and the end of the year. Brian Newman : For the balance of the year, that’s right. Helane Becker : Yes. That’s perfect and thank you very much. I appreciate that. Carol Tome : Thank you. Brian Newman : Thanks, Helane. Operator: Our next question will come from the line of Scott Schneeberger of Oppenheimer. Please go ahead. Scott Schneeberger : Thanks very much. I am going to go International and it’s a bit of a two-parter. Just curious what you are seeing with regard to SMB penetration in International market contrasting it with the U.S. market? And then looking at International, it’s been tremendously strong, very high margin. I am just curious, what are the factors you are watching that might put you a little higher or lower in the back half of the year with regard to the international business overall? Thanks. Carol Tome : Well, I’ll address the SMB. We were very pleased with the SMB performance in the second quarter. It grew 17% year-on-year. Many of the customer journeys that we are introducing in the United States, we are taking outside the United States, as well. And Scott Price and his team are doing a really nice job of understanding customer pain points and where we need to invest. One of the areas that we need to invest candidly is time in transit. And that’s one reason we were so excited about the new Osaka to Shenzhen lane that we opened up in the second quarter, where our time in transit was something like 26%, it’s now 76%. So we are leading the pack in that regard. So, pleased about that. You might talk about margin. Brian Newman : Yes, I think from a margin perspective, Scott, what’s plus up or plus down drivers, I think Scott and the team are focused on controlling what they can control and doing that very well. They’ve remained - they’ll continue to deliver these elevated margins which are terrific. I think this is a thing that we are really plus it up or plus down would be the external factors in terms of the inventory pipeline and COVID spikes with the Delta variant to the extent there are less impact - impactful, maybe we go up to the extent there are more shutdowns and inventory remains tighter. It could be a challenge. But that - those are really the external factors that I would highlight. Scott Schneeberger : Great, thanks. Operator: Our next question will come from the line of Todd Fowler of KeyBanc Capital Markets. Please go ahead. Todd Fowler : Great. Thanks, and good morning. So, I wanted to ask a little bit on the labor availability side. It sounds like that there were some actions taken in the current quarter for some incentive compensation there. And as we think about the back half of the year, it sounds like some market adjustments. I guess, we typically think about it’s been little bit more locked in on the labor cost side. Can you speak to what you are seeing with labor availability and how you think you are positioned at this point from a labor cost standpoint for the rest of the year? Carol Tome : Yes, it’s a tight labor market for sure. And to your observation, we are pretty much locked in, because of the way that most of our people are employed. But in certain parts of the country, we’ve had to make some market rate adjustments. That’s a smaller piece on the cost pressure that we have in the back half that Brian detailed for you in his remarks. We need to hire a lot of people for peak and I’m happy to say that even in the face of this tight labor market, we are ahead of where we were a year ago. And Nando and his team are just managing this on a day-to-day basis. And just as it relates to peak, our peak planning is well underway. The good news is from an operating perspective, we have one additional operating day this year, which helped us. We are lining up the aircraft that we need to lease to manage the volume. We are lining up all the rental equipment that we need to have in place to handle the volume and of course, on the people - on the people side. So, we’re - every day we are working on peak. I know it’s just July, but we are working on peak every day. Todd Fowler : Great. Thank you. Operator: Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead. Scott Group : Hey. Thanks. Morning. Just a couple of things I want to clarify. Can you just give us how much the one-time bonus was in 2Q that you talked about? And is the August wage increase different than normal? And then, just bigger picture, I am struggling with just understanding if we have a positive price cost spread in second half? Why margins aren’t really improving? And then, if I could just ask one more, Carol, going back to the Analyst Day, we heard a lot about mix. I don’t know that we heard a lot about like underlying pricing. And can you just talk about that as well? Thank you. Carol Tome : Sure. Go ahead, Brian. Brian Newman : Yes. So, the first two questions, Scott, you got a few packed in there. The one-time bonus cost about $20 million in terms of the impact that we put out. The increase, we have step-ups in our wage contracts and so, it would be higher than previous year. Obviously, we are always talking more sequentially what was in the first half versus the second half and that’s the big impact, which is about - in or about $400 million in totals, so about 150 BPS on margin. And then I think, the margins, as spreads get a bit tighter, I laid out the - what our assumptions were in the back half of the year. So there is still positive leverage. They just get a little bit constrained by two things. One is the mix that we talked about during peak and the higher enterprise and B2C and then the additional headwind pressure in terms of the labor piece that I mentioned. Carol Tome : You might give a little color on next-gen profit to and the activity underway there. Brian Newman : So, next-gen profits has evolved Scott, to look at both the RPP and the CPP and so the team’s got together each and every week to think about, how do we drive the right customer in and the service trade-offs to deliver the right product availability. A lot of it has to do with the dynamic pricing. So when we announced our surcharges, we are trying to target specific areas and basically play the mix rate and surcharge lever. We still got plenty of room to go as I mentioned on the rate renegotiation on the cost piece. We are looking at bigger ticket items to change the game. So, Nando and his team or are thinking about – they are doing the blocking and tackling every day, but how do we take on a few initiatives in that much bigger cost bucket. Non-ops were making good progress. We’ve delivered about half of that $500 million in non-ops on a year-to-date basis, about $220 million. But on the back-end of the year, we’ll be getting after some of the operations opportunity and going into 2022. Scott Group : And Carol, just the broader pricing? Carol Tome : The broader pricing market. So, pricing remains tight. It’s projected that at peak there’ll be a demand capacity imbalance of about 5 million pieces per day. So that is a nice environment to be working in. But you don’t want to run the business just on price lift, day in and day out. You really want to right the total value equation. So, we’ve got a laser-focus on cost and productivity, as well as providing the capabilities that our customers value the most. Scott Group : Thank you, guys. Appreciate it. Brian Newman : Thanks, Scott. Operator: Our next question will come from the line of Brian Ossenbeck of J.P. Morgan. Please go ahead. Brian Ossenbeck : Hey, good morning. Thanks for taking the question. I guess two quick follow-ups on the last commentary. Brian, can you elaborate on just the next-gen profit initiative? Is it fully rolled out across the entire company? Is this more of a U.S. domestic focus? And we heard about it at Investor Day, but how embedded - is it 100% ramped up across the operations and fully working? And then, Carol, you mentioned the 5 million pieces per day shortfall. I think that’s down from 7 million. Last time you talked about it I don’t necessarily think that’s a bad thing because people are trying to secure capacity in advance probably. But maybe you can put some context around that in terms of the broader supply demand balance which seemingly is still pretty tight, but obviously maybe a little bit more capacity coming back into the market ahead of another strong peak? Brian Newman : So, on the first question that you are asking about the next-gen profit, look, Scott Price and the international team are really focused on value share growth. And so, this is mainly a domestic initiative at this stage of the game as we look at margin opportunities between RPP and CPP in terms of it being fully deployed. Now, the cost runway takes a little longer to get after. So we still catching up with some of the initiatives taking hold from an operations and a cost perspective that will have a longer tail to it. And then we are well on the journey in terms of getting a playbook. I would say the piece on RPP that still needs some revenue that still needs to catch up would be the dynamic pricing that relies on technology. So that’s the next chapter on the revenue side. Cost, we continue to work on and it’s more of a Domestic focus. Carol Tome : That dynamic pricing is such an exciting aspect of our future. But it is highly dependent on data and technology. We have in one of our wildly important initiatives is enterprise data strategy. We’ve got data and lots of data and lots of data pools around the company. And I would say some of the data pools are not very clean. So we are going to clean up all those data pools and get to one version of the truth so all of our consuming applications go into one clean data pool that will make it so much easier for our revenue leaders and our sales leaders to manage the business. The same is true for cost, right? So this is a pretty exciting initiative that we have underway and then you layer technology on top of that. The technology piece is not the heavy lift to data is the heavy lift but that initiative is well under way. And in terms of the demand/supply capacity challenge, it has gotten a little bit better because people have added capacity as you would expect, we’re adding capacity. So is our competitors. So it’s still an interesting environment for sure and as we work with our customers, we want to ensure that we meet their needs. So we’re sitting down with - there are out 300 customers who make up that peak volume surge and we’re sitting down with each of them understanding what their projections, what their promotions are, how are they thinking about the holiday season and really trying to work with them. So that we provide to them the same outstanding and excellent service that we gave to them last year. We just - we are laser-focused on making them happy. Brian Ossenbeck : All right. Thank you very much. Operator: Our next question will come from the line of Tom Wadewitz of UBS. Please go ahead. Tom Wadewitz : Yes. Good morning. So, I think, when I guess when I try to process the comments in the guidance and everything, it does seem like there is a bit of positive outlook, but lots of momentum relative to the year-over-year improvement in Domestic margin. So focused on domestic in particular. Is that the right way to understand it? Again, not that you can’t improve in the future, but just a slower pace. And I guess, is there - I wonder is there something that would kind of re-accelerate that if you looked at 2022? Is there pricing that labor inflation moving through that would cause another bite at the apple on some of this pricing? Or how would you think about that, I guess, question, slower improvement and is there an acceleration in or a potential driver of acceleration in Domestic in 2022?. Thank you. Carol Tome : It’s still very interesting when you look at the shape of our years, our quarters and our business. We are not a sequential business. Q2 is usually the high watermark for margin and then it comes in the back half because of mixed changes in the fourth quarter related to peak. So, the way you should think about our business is year-on-year-on-year. At the beginning of this year, I can recall quite clearly at our earnings call at the end of the fourth quarter, where I said, our U.S. operating margins would increase this year and the reaction was, no it won’t, you can’t possibly do it. And in fact, Brian, we are increasing the operating margin in the U.S. by 240 basis points. So we are well on our way to increasing our operating margin in the U.S. to the 12% target that we set forth in 2023. So think of our business year-on-year not so much quarter-over-quarter or first half versus back half. Brian Newman : Yes. And Tom, one of the other things that changed this year, if you look at last year’s Q1 in which there was 3%-ish. Nando and the team did an extraordinary job of focusing to get the cost out from peak and that changed the shape of the calendar a bit and that’s one of the reasons of that combined with a strong 2Q performance why the first half of the year. But as Carol said, we are managing on a full year basis and to go from 7.7 last year to 10.1, it’s more than 50% on that journey to get to that 12%. Tom Wadewitz : Yes. Okay, that’s helpful. What about that inflation component? Is there - if you had stronger wage inflation - every company it seems is talking about difficulty of labor availability and inflation. Is it possible that that gives you the ability to go back and ask for a second price increase? Or that supports more pricing as you look at 2022? Or it’s more supply/demand driven and the market is getting a touch less tight? Carol Tome : Well, we know what happens in an inflationary environment that way, somebody pays for it. It’s usually the consumer, which means, right, that price increases get passed along all the way to the end to the consumer until the consumer says ouch, I am not going to buy anymore. Consumer continues to buy. So yes, we are in the cycle and this is the cycle, so right, this is the cycle. Tom Wadewitz : Right. Okay. Thank you. Brian Newman : Thanks, Tom. Scott Childress : Hey, Steven, it’s Scott. We’ve got time for one more question if you would please. Operator: Certainly, sir. Our final question comes from the line of David Vernon of Bernstein. Please go ahead. David Vernon : Thanks for squeezing me in here. I kind of want to specifically kind of drill into this lack of momentum seen here, right? When you think about the rate of change even on a year-over-year basis, if we are looking at something in a nine handle in the back half of the year, the rate of change is decelerating. So I’d love to understand kind of, what specifically we should be looking for to reaccelerate that rate of change into 2022? And how we should be thinking about the risk that the 2H domestic margin guide, whether you can actually do a little bit more than that nine in the guidance? Brian Newman : So, from a 2H risk perspective, Dave, look, there is a lot of uncertainty out there with COVID and Delta variant and what happens. We are using the data we have today to build the best forecast we can. I think then from a sequential margin perspective, look I think the improvement from 7.7 to 10.1 is positive. Next year what can accelerate? We have an annual GRI, we can relook at our pricing. Our cost and productivity initiatives are taking further hold. So we are going to continue to press and the journey on SMBs, that’s been a great story. As we’ve been walking up, obviously in Q4 with peak, the mix of SMBs will be a little bit less and then the B2C enterprise customers. But, I would look for that journey to continue next year. Kevin and the team and Kate, they are doing a wonderful job of working with platform customers and SMBs to drive that. So as that mix goes up, margin improves. So there are several levers. Carol, I don’t know if you want to provide some color. Carol Tome : No, I think you called it. Thank you. Brian Newman : Thanks, Dave. Operator: I will now turn the floor back over to our host, Mr. Childress. Please go ahead, sir. Scott Childress : Thank you, Steven. This concludes our call. I want to thank everyone for joining. And hope you have a great day. Thank you.
United Parcel Service, Inc. (NYSE:UPS) Overview and Financial Analysis
- Andrew Steinerman from J.P. Morgan set a price target of $47 for NYSE:UPS, significantly lower than its current price of $99.37, suggesting potential overvaluation.
- UPS remains attractive for dividend-seeking investors, thanks to its substantial free cash flows and significant dividend payouts.
- The company's market capitalization is approximately $84.14 billion, with a trading volume of 2,690,937 shares, indicating strong investor interest despite market volatility.
United Parcel Service, Inc. (NYSE:UPS) is a global leader in logistics and package delivery services. The company operates in over 220 countries and territories, providing a wide range of services including transportation, distribution, and supply chain management. UPS competes with other major players in the logistics industry, such as FedEx and DHL.
On June 20, 2025, Andrew Steinerman from J.P. Morgan set a price target of $47 for UPS. At that time, the stock price was $99.37, indicating a significant difference from the target. The current price is approximately 52.7% higher than the target, suggesting a potential overvaluation according to Steinerman's analysis.
Despite this, UPS remains attractive to investors, especially those seeking dividend-yielding stocks. In times of market turbulence, investors often prefer companies with substantial free cash flows that offer significant dividend payouts. UPS fits this profile, making it appealing for stable returns amidst market volatility.
The current stock price of UPS is $99.37, reflecting a slight increase of 0.16% or $0.16. Today, the stock has fluctuated between a low of $99.12 and a high of $100.50. Over the past year, UPS has seen a high of $148.15 and a low of $90.55, showcasing its volatility in the market.
UPS's market capitalization stands at approximately $84.14 billion, indicating its substantial size in the industry. Today's trading volume for UPS is 2,690,937 shares on the NYSE, reflecting active investor interest. Despite the price target set by J.P. Morgan, UPS continues to be a significant player in the logistics sector.
United Parcel Service, Inc. (NYSE:UPS) Overview and Analyst Update
- Oppenheimer upgrades NYSE:UPS to "Outperform" with a stock price of $100.03, indicating a positive outlook.
- UPS is recognized for its high dividend yield and substantial free cash flows, appealing to investors seeking income.
- The company's focus on higher-margin deliveries and productivity enhancements are key to its long-term growth, despite potential short-term volatility.
United Parcel Service, Inc. (NYSE:UPS) is a global leader in logistics and package delivery services. The company operates in the transportation and logistics sector, providing a wide range of services including package delivery, freight forwarding, and supply chain management. UPS competes with other major players like FedEx and DHL in the logistics industry.
On June 20, 2025, Oppenheimer updated its rating for UPS to "Outperform," with the stock priced at $100.03. This rating suggests that Oppenheimer expects UPS to perform better than the overall market. Despite the "hold" action associated with this update, UPS is highlighted for its high dividend yield, making it an attractive option for investors seeking income during market uncertainty.
UPS is considered a top choice among industrial stocks for its substantial free cash flows, which support significant dividend payouts. The stock has shown a price increase of 1.05%, reflecting positive investor sentiment. However, there are concerns about the sustainability of its dividend and potential short-term disappointments, which investors should consider.
The long-term bullish outlook for UPS is driven by strategic management decisions. The company is focusing on higher-margin deliveries to enhance profitability and implementing measures to boost productivity. These initiatives are expected to strengthen UPS's long-term growth prospects, although investors should be prepared for potential near-term volatility.
UPS has recently gained attention on Zacks.com, indicating its status as a trending stock. Over the past month, UPS shares have increased by 1.5%, contrasting with the broader Zacks S&P 500 composite's 6.6% rise. The Zacks Transportation - Air Freight and Cargo industry, which includes UPS, recorded a gain of 4.6%. Despite these fluctuations, fundamental factors like earnings estimate revisions remain crucial for long-term investment decisions.
United Parcel Service (NYSE:UPS) Financial Performance and Strategic Moves
- UPS reported an EPS of $2.75, surpassing the estimated $2.52, marking a 9.13% earnings surprise.
- The company faces challenges with a projected decline in 2025 revenue due to reducing Amazon deliveries by over 50%.
- UPS is expanding its client base and focusing on premium healthcare business to maintain profitability despite revenue challenges.
United Parcel Service (NYSE:UPS) is a global leader in logistics and package delivery services. The company offers a wide range of services, including transportation, distribution, and supply chain management. UPS competes with other major players like FedEx in the logistics industry. Despite challenges, UPS continues to adapt its strategies to maintain its market position.
On January 30, 2025, UPS reported earnings per share (EPS) of $2.75, exceeding the estimated $2.52. This marks a 9.13% earnings surprise, as highlighted by Zacks. The company has consistently outperformed consensus EPS estimates in three of the past four quarters. However, UPS's revenue for the period was $25.3 billion, slightly below the estimated $25.41 billion, missing consensus revenue estimates for the fourth consecutive quarter.
UPS faces challenges with a projected decline in 2025 revenue, mainly due to a significant reduction in deliveries for its largest customer, Amazon. The company plans to cut Amazon volumes by over 50% by late 2026, a move that surprised analysts. This decision has led to a nearly 15% drop in UPS shares during premarket trading, as reported by Reuters.
To counterbalance the decline in Amazon deliveries, UPS is expanding its client base by onboarding new e-commerce clients like Temu and Shein. The company is also delivering small packages previously handled by the United States Postal Service. Additionally, UPS is focusing on its premium healthcare business and divesting assets, such as its Coyote Logistics freight business, to maintain profitability.
UPS's financial metrics provide insight into its market valuation and financial health. The company has a price-to-earnings (P/E) ratio of approximately 16.66 and a price-to-sales ratio of about 1.04. Its enterprise value to sales ratio is around 1.27, while the enterprise value to operating cash flow ratio is approximately 12.46. With a debt-to-equity ratio of roughly 1.56 and a current ratio of approximately 1.14, UPS demonstrates a significant level of debt compared to its equity but maintains the ability to cover short-term liabilities.
United Parcel Service (NYSE:UPS) Financial Performance and Strategic Moves
- UPS reported an EPS of $2.75, surpassing the estimated $2.52, marking a 9.13% earnings surprise.
- The company faces challenges with a projected decline in 2025 revenue due to reducing Amazon deliveries by over 50%.
- UPS is expanding its client base and focusing on premium healthcare business to maintain profitability despite revenue challenges.
United Parcel Service (NYSE:UPS) is a global leader in logistics and package delivery services. The company offers a wide range of services, including transportation, distribution, and supply chain management. UPS competes with other major players like FedEx in the logistics industry. Despite challenges, UPS continues to adapt its strategies to maintain its market position.
On January 30, 2025, UPS reported earnings per share (EPS) of $2.75, exceeding the estimated $2.52. This marks a 9.13% earnings surprise, as highlighted by Zacks. The company has consistently outperformed consensus EPS estimates in three of the past four quarters. However, UPS's revenue for the period was $25.3 billion, slightly below the estimated $25.41 billion, missing consensus revenue estimates for the fourth consecutive quarter.
UPS faces challenges with a projected decline in 2025 revenue, mainly due to a significant reduction in deliveries for its largest customer, Amazon. The company plans to cut Amazon volumes by over 50% by late 2026, a move that surprised analysts. This decision has led to a nearly 15% drop in UPS shares during premarket trading, as reported by Reuters.
To counterbalance the decline in Amazon deliveries, UPS is expanding its client base by onboarding new e-commerce clients like Temu and Shein. The company is also delivering small packages previously handled by the United States Postal Service. Additionally, UPS is focusing on its premium healthcare business and divesting assets, such as its Coyote Logistics freight business, to maintain profitability.
UPS's financial metrics provide insight into its market valuation and financial health. The company has a price-to-earnings (P/E) ratio of approximately 16.66 and a price-to-sales ratio of about 1.04. Its enterprise value to sales ratio is around 1.27, while the enterprise value to operating cash flow ratio is approximately 12.46. With a debt-to-equity ratio of roughly 1.56 and a current ratio of approximately 1.14, UPS demonstrates a significant level of debt compared to its equity but maintains the ability to cover short-term liabilities.
United Parcel Service (NYSE: UPS) Earnings Preview: A Look at Q4 Expectations
- Analysts predict a positive Q4 earnings report for NYSE:UPS, with an EPS of $2.52 and revenue of $25.4 billion.
- Optimism is high for a second consecutive quarter of year-over-year revenue and profit growth, indicating a potential turnaround.
- With 12 out of 15 analysts giving "buy" ratings and a consensus price target of $153.73, investor confidence in UPS is strong.
United Parcel Service (NYSE: UPS) is a global leader in logistics and package delivery services. As it prepares to release its fourth-quarter earnings on January 30, 2025, analysts are closely watching the company's performance. Wall Street estimates an earnings per share (EPS) of $2.52 and revenue of approximately $25.4 billion, reflecting a positive outlook for UPS.
Analysts are optimistic about UPS's potential for a second consecutive quarter of year-over-year revenue and profit growth. This optimism follows a challenging period of declining sales, as highlighted by the company's CEO. The anticipated revenue of $25.34 billion represents a 1.7% increase from the previous year, signaling a potential turnaround for UPS.
Among the 15 analysts covering UPS, 12 have issued "buy" ratings, indicating strong confidence in the company's future performance. The consensus price target is $153.73, over 15% higher than the stock's recent closing price. Analysts expect UPS to report a net income of $2.14 billion, or $2.51 per share, aligning closely with the projected EPS.
UPS has a history of surpassing earnings expectations, having exceeded the Zacks Consensus Estimate in three of the last four quarters. This track record, with an average beat of 1.5%, may influence investor decisions as they consider buying UPS stock ahead of the earnings announcement.
The company's financial metrics, such as a price-to-earnings (P/E) ratio of 20.38 and a price-to-sales ratio of 1.28, provide insight into investor sentiment. With a debt-to-equity ratio of 1.56, UPS's use of debt financing is notable. The current ratio of 1.14 indicates its ability to cover short-term liabilities, reflecting a stable financial position.
United Parcel Service (NYSE: UPS) Earnings Preview: A Look at Q4 Expectations
- Analysts predict a positive Q4 earnings report for NYSE:UPS, with an EPS of $2.52 and revenue of $25.4 billion.
- Optimism is high for a second consecutive quarter of year-over-year revenue and profit growth, indicating a potential turnaround.
- With 12 out of 15 analysts giving "buy" ratings and a consensus price target of $153.73, investor confidence in UPS is strong.
United Parcel Service (NYSE: UPS) is a global leader in logistics and package delivery services. As it prepares to release its fourth-quarter earnings on January 30, 2025, analysts are closely watching the company's performance. Wall Street estimates an earnings per share (EPS) of $2.52 and revenue of approximately $25.4 billion, reflecting a positive outlook for UPS.
Analysts are optimistic about UPS's potential for a second consecutive quarter of year-over-year revenue and profit growth. This optimism follows a challenging period of declining sales, as highlighted by the company's CEO. The anticipated revenue of $25.34 billion represents a 1.7% increase from the previous year, signaling a potential turnaround for UPS.
Among the 15 analysts covering UPS, 12 have issued "buy" ratings, indicating strong confidence in the company's future performance. The consensus price target is $153.73, over 15% higher than the stock's recent closing price. Analysts expect UPS to report a net income of $2.14 billion, or $2.51 per share, aligning closely with the projected EPS.
UPS has a history of surpassing earnings expectations, having exceeded the Zacks Consensus Estimate in three of the last four quarters. This track record, with an average beat of 1.5%, may influence investor decisions as they consider buying UPS stock ahead of the earnings announcement.
The company's financial metrics, such as a price-to-earnings (P/E) ratio of 20.38 and a price-to-sales ratio of 1.28, provide insight into investor sentiment. With a debt-to-equity ratio of 1.56, UPS's use of debt financing is notable. The current ratio of 1.14 indicates its ability to cover short-term liabilities, reflecting a stable financial position.
United Parcel Service, Inc. (NYSE:UPS) Faces Challenges Amidst Growth Opportunities
- Ariel Rosa from Citigroup sets a price target of $162 for NYSE:UPS, indicating a potential upside of 23.7%.
- UPS is under investigation by Levi & Korsinsky for potential violations of federal securities laws following its Q2 earnings report and lowered guidance.
- The company's stock price currently stands at $130.96, with a year's trading range between $123.12 and $163.82, showcasing volatility.
United Parcel Service, Inc. (NYSE:UPS) is a global leader in logistics and package delivery services. The company operates in over 220 countries, providing a wide range of solutions, including transportation, distribution, and freight services. UPS competes with other major players like FedEx and DHL in the logistics industry.
On October 8, 2024, Ariel Rosa from Citigroup set a price target of $162 for UPS, suggesting a potential upside of 23.7% from its current price of $130.96. This optimistic outlook comes despite recent challenges faced by the company, including an investigation by Levi & Korsinsky into potential violations of federal securities laws.
The investigation follows UPS's announcement on July 23, 2024, where it reported second-quarter earnings and lowered its guidance for the rest of the year. This has raised concerns among investors about the company's financial disclosures and compliance with securities regulations, as highlighted by Levi & Korsinsky.
Currently, UPS's stock price is $130.96, reflecting a slight decrease of 0.18% or $0.24. The stock has traded between $130.50 and $131.78 today. Over the past year, UPS has seen a high of $163.82 and a low of $123.12, indicating some volatility in its stock performance.
UPS's market capitalization is approximately $112.18 billion, with a trading volume of 1,712,992 shares on the NYSE today. Despite the ongoing investigation and lowered guidance, the company's substantial market cap and trading activity suggest continued investor interest.
