How the UPS Transformation Plan Is Touted to Lift Earnings

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Last November, United Parcel Service Inc. (NYSE: UPS) filled a newly created position of chief transformation officer, who would be responsible for driving change in the company with the goal of finding strategies UPS could use to prioritize investment “for the greatest strategic benefit and long-term shareholder return.” On Thursday, the company put some hard numbers to that grand plan.

At its Transformation Conference in New York, UPS announced that the company expects the financial benefits of its transformation initiatives to result in an increase of between $1.00 and $1.20 to adjusted earnings per share by 2022.

Analysts have an estimate for $7.25 in earnings per share for the current fiscal year, suggesting a compound annual growth rate of 3.5% to 4.0%. The company’s dividend yield right now is 2.94%.

Chair and CEO David Abney said:

Transformation will lift our earnings, as we generate higher-quality revenue and use technology to increase operating efficiency and enhance customer service. UPS is transforming from a position of strength. We are implementing an enterprise-wide transformation that will enable and accelerate our enhanced business strategy.

UPS is focused on four “strategic imperatives” which it believes it is well-positioned for growth:

  • Continued expansion of high-growth international markets where the company efficiently connects domestic and export customers to its global network;
  • Profitable expansion from both B2B and B2C e-commerce, as U.S. industry package revenue is expected to grow by 40% from 2017 to 2022, and cross-border e-commerce volume is expected to grow by 28% over the next three years;
  • Further penetration of the Healthcare and Life Sciences logistics market, given the increasing shift toward home healthcare, where UPS’s trusted residential delivery network will provide new value for healthcare companies and consumers;
  • Enhancing services and value for Small- and Medium-sized Businesses, as the company repositions its commercial and service strategies to help this growing economic segment reduce logistics complexity and costs, and take advantage of UPS-offered technology platforms for growth.

The company plans to add to its automated sorting capabilities over the next four years and expects that 100% of its eligible U.S. volume will be sorted in automated facilities by 2022. In all, UPS plans to implement more than 70 expansion projects in its sorting facilities by 2022.

UPS stock traded up about 0.4% early Thursday morning at $123.97, in a 52-week range of $101.45 to $135.53. The consensus price target on the stock is $128.41.