In a transformative shift, United Parcel Service, Inc. (NYSE:UPS), the iconic brown-truck delivery giant, is charting a course towards recovery and robust growth. Despite recent challenges, including a dip in demand from large customers and the impact of a new union labour contract, UPS is on the verge of a positive inflexion.
Management’s strategic focus on expanding in high-potential segments such as small and medium-sized businesses (SMBs), healthcare, and international markets, alongside a keen emphasis on improving revenue per piece (RPP) through core rate retention and an evolving service mix, signals a promising future.
A closer look reveals that nearly two-thirds of the previously lost traffic is making its way back to UPS, with expectations of volume growth as we head into late spring. The company’s ability to maintain a 5.9% General Rate Increase (GRI) this year, improving upon last year’s 60% retention rate, alongside an increased SMB mix and significant revenues from healthcare, underscores a strategic pivot to more lucrative sectors.
Furthermore, UPS’s proactive stance on cost management, especially in confronting the cost per piece (CPP), is noteworthy. The initial shock of the labour contract, predicting a ~10% inflation, gives way to optimism as subsequent years forecast a substantial reduction in labour inflation. The adoption of technology, including the shift from a “scanning culture” to a “sensing culture” through RFID implementation and the exploration of robotics, presented a pathway to operational efficiency and reduced labour costs.
As UPS prepares for its highly anticipated analyst day on March 26th, 2024, stakeholders are keenly watching how these strategic shifts and technological advancements will translate into financial performance. With projections indicating an upward trend in non-GAAP EPS from 2023 to 2025 and a solid growth in revenues, the narrative around UPS is one of resilience, innovation, and strategic growth. Amidst a backdrop of operational and financial recalibration, UPS emerges as a compelling story of a century-old company embracing change to secure its place in the future of delivery and logistics.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.
