United Parcel Service’s Margins Improve Resulting In A 3Q Beat

by Trefis Team
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United Parcel Service (NYSE:UPS) reported earnings on 24th October. The company, on the back of e-commerce flow, saw revenue improve for the quarter, coming in at $17.44 billion, slightly below consensus estimates. The focus on e-commerce meant that domestic package revenues rose by 8.1% year-over-year. The international segment saw revenues rise by 5% on a currency neutral basis. With concerns over the trade war with China, and Brexit, markets continue to be wary of UPS’s international revenues going forward.

We currently have a price estimate of $125 per share, which is 19% higher than the market price. You can use our interactive dashboard Q3 Results For UPS to modify key drivers and visualize the impact on UPS’s price estimate.

UPS is focusing on the following key areas: Expanding its business into international markets, direct-to-consumer delivery, business-to-business services, healthcare logistics market, and increasing small/medium package volume. By focusing on these key areas, UPS should improve its revenue mix, and thereby increase the durability of its top-line. With e-commerce delivery becoming a crucial segment in its revenue mix, UPS plans to add 70 packaging facilities, and open seven new automated sorting facilities (super hubs). UPS’s margins should improve with the new facilities showing increased efficiency, and better turnaround. Record capital spend is aimed at two main markets – firstly, the e-commerce market, and secondly the small/medium package business. The supply chain overhaul would be the biggest one yet.

Reduction in working capital and increased operating efficiency meant that operating profit for the quarter was the second highest in recorded history.

UPS should see further improvements in margins into the next quarter as some of the new hubs and technological overhaul start to take shape. This will be positive for revenue going forward, and we can expect earnings to steadily rise as these changes take place.


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