Why Is UPS Increasing Its Capital Expenditures?

+4.67%
Upside
149
Market
156
Trefis
UPS: United Parcel Service logo
UPS
United Parcel Service

UPS (NYSE:UPS) is undertaking a host of measures to counter the challenges of booming e-commerce trade and prepare itself for increased competition from the FedEx-TNT combined entity in Europe. To this end, the company plans to increase its capital spending, in order to upgrade its existing facilities and fleet both in the U.S and Europe. We expect UPS to increase its capex at a CAGR (compound annual growth rate) of around 7% through 2019, which is likely to be higher than its revenue growth. However, these investments will likely benefit the company in the long run.

Screen Shot 2016-09-08 at 14.41.43

Automating Facilities

Relevant Articles
  1. Will UPS Stock Recover To Its Pre-Inflation Shock High of $230?
  2. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?
  3. Should You Pick UPS Stock After Its 10% Fall Last Year?
  4. Should You Pick UPS Stock At $140 After An 18% Fall This Year?
  5. Which Is A Better Pick – UPS Stock Or Archer-Daniels-Midland?
  6. Which Stock Is A Better Pick For The Next Three Years – UPS Or CMCSA?

Currently, UPS has 360 operating facilities and 2,500 access points in the U.S. In order to cater to the needs of the growing e-commerce market, the company plans to automate most of its existing Tier 1 facilities. Currently, e-commerce deliveries contribute 46% of the total domestic packages that the company ships, and this is expected to rise to 51% by 2019. UPS has announced plans to automate its existing facilities in California, Colorado, Illinois and Texas this year, and expects productivity to improve by 20-30% due to automation. By 2019, the company plans to sort 50% of the total ground volume through automation, which will enable it to not only improve productivity but also reduce the costs.

UPS is also taking measures to upgrade its facilities in Europe, in order to tackle the renewed competitive challenge from the combined FedEx-TNT entity. The company intends to spend $2 billion on upgrading its existing facilities in Europe and has announced plans to expand its facilities in Belgium and France.

Improving Its Exisiting Fleet

Additionally, UPS is undertaking a host of other measures to improve its existing fleet and its efficiency. The company’s On-Road Integration Optimization & Navigation program (ORION) can help it reduce expenses through route optimization. Upon full deployment of the plan, UPS expects to reap benefits to the tune of $300-400 million. Also, the company plans to reduce its dependency on conventional fuel and increase the fleet running on alternative fuels.


View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research